Know thy enemy and stop getting duped

Money 911: Know thy enemy and stop getting duped

October 11, 2009

Ellen Roseman

Last December, Bernard Madoff confessed to his sons about running a fake wealth management operation: "One big lie."

This year, several Canadians – Earl Jones in Montreal and Milo Brost and Gary Sorenson in Calgary – were alleged to have cheated investors out of millions of dollars.

Financial fraud is the business story of 2009.

The stock market collapse last fall helped bring down some Ponzi schemes, which rely on cash from new investors to pay off existing investors. However, economic desperation may lead more people to say yes to marketing pitches that seem too good to be true.

Pat, for example, who's a senior on a fixed income, ordered a "free sample" of vitamins from Vital RezV, a company based in Ottawa. This led to charges on her credit card, not once, but many times.

"So far, I've been charged an amount of $79.95 three times and $85.26 two times. I did not sign on for monthly deliveries, as they claim I did," she said.

Her credit card issuer, TD Visa, refused to block the charges. It wanted the company to confirm the account was cancelled, which it never did.

I helped Pat with TD Visa, which reimbursed her for all charges and took measures to prevent any future charges. The Better Business Bureau in Ottawa has 26 complaints filed against Vital RezV, also known as Viv3lab Ltd., and gives the company an F rating (on a scale of A+ to F).

The BBB warns that an offer of free product trials can lead to buyers being enrolled in a program with automatic shipments and credit card charges every month, despite their repeated requests to cancel orders and refund amounts charged.

Do you remember learning to drive and being taught to practise defensive driving? This means anticipating that everyone else on the road is out to get you and taking steps to protect yourself.

Defensive consumerism is the attitude to take when looking at anything that involves your hard-earned money. Never let down your defences. Don't look at the bright side; look at the dark side. If you assume that salespeople or companies are trying to rip you off, you'll take measures to shore up your security – just in case your assumption is correct.

Warding off deceptive schemes pitched by dodgy advisers is just as vital to your financial health as paying off your mortgage or contributing to a retirement savings plan.

Last week, the Canadian Securities Administrators published a research study of investment fraud. Which people are more likely to be approached?

• Do-it-yourself investors, who have looked for information about investing in the past 12 months.
• Those who choose more aggressive investments and are willing to take more risk to achieve above-average returns.
• Those who are more active online, buying goods and services on the Internet or by phone at least every two months.
• Those who are less likely to work with advisers (even if they have one) when making investment decisions.
• Those who are confident and believe they are informed about investments.

And who are the victims of investment fraud?

They're more likely to be overconfident, do-it-yourselfers, frequent traders, comfortable with taking risk and well educated. (Half have college or university degrees and one in 10 has a postgraduate degree.)

Recognizing and avoiding fraud is the next topic we'll focus on in my next series of Money 911 columns each Sunday. Next week, we'll take a closer look at investment frauds and why they work so well.