Americans lose some $50 billion a year to financial fraud, according to the Stanford Center on Longevity’s Financial Security Division. If it ever happens to you or someone close to you, here’s what to do.
- Financial scams cost Americans more than $50 billion a year.
- Contrary to popular belief, people who fall victim to investment scams tend to be better educated and more affluent than investors in general.
- The majority of financial fraud victims never report the incident to authorities.
- Companies that promise to help you recover your money may be scams too, especially if they ask for payment in advance.
Are You a Potential Scam Victim?
Contrary to popular perception, it’s not just the most vulnerable or gullible among us who fall prey to financial scams. A 2017 study by the AARP’s Fraud Watch Network reported that investment fraud victims were more likely than investors in general to have at least a four-year college degree and to make more than $50,000 per year. The list of Bernard Madoff’s Ponzi scheme victims, to cite one famous example, included any number of people you might think would know better.
Professional con artists are just that—professionals—and they are very good at what they do, whether it’s penny stock scams, credit repair scams, COVID-19 scams, or whatever might be the latest twist. Despite a wealth of information on how to spot and avoid scams here at Investopedia and on the websites of government agencies that deal with the problem every day, many people still find themselves sucked in. What should you do if you become one of them?
1. Listen to Your Suspicions
If the person you’ve been dealing with stops returning your calls, that could be a sign that something is amiss. If you aren’t receiving regular account statements or if your statements show unexplained losses or consistent returns despite the ups and downs of the market, those could be signs as well. And if you get the runaround when you try to make withdrawals, your money could be long gone.
2. Report It to the Authorities
You might be surprised how many scam victims just keep it to themselves and the variety of reasons they give for that. A 2015 survey from the FINRA Investor Education Foundation found that only 35% of financial fraud victims reported the incident to the authorities. The survey’s respondents gave four main reasons for their reluctance: 48% said they didn’t think it would make any difference, 35% wanted to put it behind them, 29% were embarrassed, and 26% said they didn’t know where to turn.
Gerri Walsh, president of the FINRA Investor Education Foundation, recommends that investment fraud victims not only report the crime but also tell as many agencies as possible. The FINRA Investor Complaint Center, for example, has an online form investors can use to report problems with brokerage firms and brokers, as well as links to file complaints with the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the National Futures Association.
Other agencies that might be of assistance, depending on the nature of your complaint, include the Federal Trade Commission (FTC), your local FBI office, your state attorney general, and your state’s securities regulators. You can find contact information for that last group at the North American Securities Administrators Association (NASAA) website. You might also want to consult a private attorney.
Beware of any unsolicited offers you receive to help you recover your money. Fraud-recovery con artists swim with scammers like pilot fish with sharks, swooping in to take more bites of what’s left of your cash. Be especially wary of any who ask for their fee in advance—a tactic that is illegal in itself, according to the FTC. Where do they get your name? Probably off a sucker list compiled and sold by the very crook who conned you in the first place.
3. Make Careful Notes and Save the Evidence
“Write down your story contemporaneous with realizing you’ve been scammed,” Walsh says. “Investigations can take a long time, and even if you think you’ll remember, two years from now you might have a fuzzier memory.” Also keep copies of any account statements you received, along with canceled checks, e-mails, and other relevant documents. Canceled checks, for example, could help investigators trace where the money was deposited.
Whatever you do, don’t put any more money into a deal you’ve come to regard with suspicion. You might think you’d never do that, but Walsh says it happens with heartbreaking regularity. Remember, these guys are masters of persuasion.
5. Don’t Blame Yourself
Even though you may have missed what now seem like obvious red flags, you aren’t the first and, sadly, you won’t be the last. “It’s truly difficult in the moment to know that you’re being scammed,” Walsh says. So don’t be too hard on yourself. Remember: You aren’t the criminal. The criminal is the criminal.
If all else fails, you may at least be eligible for a tax deduction for your losses.
6. Finally, Don’t Expect Too Much
Unfortunately, your odds of getting all your money back are pretty slim. Most experts say you’ll be lucky to receive even pennies on the dollar. Still, you might get something back, whereas if you don’t report it at all, you’re sure to get nothing.
You might also be eligible for a tax deduction, as with other types of thefts. IRS Publication 547, Casualties, Disasters, and Thefts explains what to do. Note that some special tax rules, enacted in the aftermath of the Madoff scandal, now apply to the victims of Ponzi schemes.
The Bottom Line
Of course, the best way to deal with investment scams is to avoid them in the first place. Still, if you’re ensnared by one, by all means report it, both for your own good and that of others. If nothing else, you might have the satisfaction of helping put a scam artist out of business for a while.