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Tough economy spawns fraudulent direct mail, telemarketing schemes

When times get tough, more people get taken in by scam artists. The declining economy combined with the retreat of profits on Wall Street may make people more vulnerable to bogus direct mail and telemarketing schemes and fraudulent investment offerings.

The U.S. Postal Inspection Service says that mail and telemarketing fraud are up 27% this year. And state security regulators say the declines in the stock market seem to have made investors more vulnerable to con artists peddling fraudulent securities, oil and gas investments and charitable gift annuities.

Bill Moak, president and CEO of the Better Business Bureau of Mississippi, said judging by the number of calls they are getting, it appears more and more people are falling victim to telemarketing fraud.

“Despite efforts to try to curb this at both the state and national levels, it does appear to be an increasing national problem,” Moak said. “Technology is helping scam artists rip people off because as computerized equipment becomes more sophisticated, we’re seeing more people use it to commit fraud.”

Another trend in recent years is towards more cross border telemarketing fraud originating in Canada. Companies set up “boiler room” operations in places like Toronto and Ottawa, and then generally start calling region by region in the U.S. Moak said U.S. laws have gotten tougher over the past several years, and the concerted efforts to close the fraudulent telemarketers have caused many of them to move to Canada where there hasn’t been as much effort to stop telemarketing fraud.

It can be difficult to extradite people over the border, and recovering funds is also complicated. However, Moak said the Canadian government and Better Business Bureau of Canada are increasingly cracking down on these kinds of operations.

Often the pitch is for promotions such as an advanced loan fee. People are asked to pay an upfront fee to process a loan. The loan never goes through, and the fee isn’t recoverable. Fraudulent sweepstakes promotions also often require an upfront fee. Victims are told to send money for shipping fees, for example, and then the promised award never arrives.

The advice from Moak on telemarketing calls is simple: Be careful and know what you are getting into. You wouldn’t give large sums of money to someone who approached you on the street. But people do the same thing on the telephone sending money to someone they have never met.

“You need to use your head whenever you get a telemarketing call,” Moak said. “The real basic thing I encourage people to do is ask questions. Find out exactly who you are dealing with. Find out the name of the company, and check them out with the Better Business Bureau. We have reports on thousands of companies nationwide.

“Many people are tired of receiving any telemarketing calls, and there are ways to get off their lists and decrease the telemarketing calls. There are laws in place that protect consumers.”

To reduce the amount of telemarketing calls and junk mail, register online at the Direct Mail Association’s Web site, www.dmaconsumers.org. It costs $5 to register online. Or you can print out a form and mail it in for only the cost of a stamp. Another way to get off phone and mailing lists is to call 1-888-5-OPTOUT.

In general telemarketers are not supposed to call before 8 a.m. or after 9 p.m., and are supposed to maintain a “do not call list” for consumers. Consumers receiving an unwanted call can be asked to be put on the “do not call list.” If the company doesn’t honor that, they are subject to penalties. Legitimate non-profit organizations are exempted from the law, and calls for non-commercial purposes are excluded. However, you can still ask charities to remove your name from their call list, and most will voluntarily comply.

For businesses, one of the most common fraudulent practices comes from what are known as “paper pirates.” These scam artists will send an invoice even when no merchandise has been ordered or received. Unless the company is vigilant, it can end up paying a bill that isn’t owed.

Moak recommends businesses have someone designated to handle accounts payable who knows all of the company’s vendors.

“Have a list of people you do business with on a regular basis,” Moak said. “Hopefully this will help weed out unscrupulous calls.”

There is such an overload of telemarketing that, unfortunately, it has affected its legitimate uses by businesses. A lot of businesses use telemarketing as a valuable tool to communicate with their customers and build the business. But misuse has harmed its effectiveness with some consumers opting not to take any telemarketing calls.

Moak said there also seems to be an increase in people getting taken in by fraudulent investment schemes. The economic downturn makes more people vulnerable to respond when people call with what appear to be great opportunities.

But the public is likely becoming much more attuned to the issue of securities fraud with all the major corporate accounting scandals of the past year, says Mississippi Secretary of State (SOS) Eric Clark.

“More than any year in recent history, all Americans now are concerned about investment fraud and corporate honesty,” Clark said. “Scandals dominating the headlines, record-low interest rates and volatility in the stock market should make all investors wary of promises that sound too good to be true.”

Clark’s office has an ongoing investigation involving WorldCom, which could represent the largest case of securities fraud in American history.

“There have always been a lot of small-time con artists involving smaller amounts of money,” said David Blount, spokesman for the SOS office. “Those cases are still out there. But now the scale of securities fraud has changed dramatically.”

For the first time recently the North American Securities Administrations Association (NASAA), which represents state securities regulators in the U.S., has identified unscrupulous stockbrokers and financial analysts with conflicting interests among the top 10 investment frauds. The Mississippi Secretary of State’s office has released the following “Top 10” scams listed by the NASAA ranked in order of seriousness:

• Unlicensed individuals, such as independent insurance agents, selling securities. While most independent insurance agents are honest professionals, some across the country are letting high commissions lure them into selling high-risk or fraudulent investments. In hundreds of cases, scam artists use high commissions to entice independent insurance agents into selling investments they may know little about and promising high returns with little or no risk. To verify that a person is licensed or registered to sell securities, call the Secretary of State’s Office. If the person is not registered, don’t invest.

• Unscrupulous stockbrokers. The declining stock market has caused some brokers to cut corners or resort to outright fraud. In addition, some investors have grown more cautious and are scrutinizing their brokerage statements for unexplained fees, unauthorized trades or other irregularities. If you believe the law is being broken, call the Secretary of State’s Office.

• Analyst research conflicts. In May, the New York Attorney General’s office concluded a 10-month investigation into whether Merrill Lynch had issued misleading research reports and buy recommendations in order to win investment banking business. Under the agreement, Merrill Lynch agreed to pay a $100 million fine and make significant changes to the way it does business. Mississippi stands to receive $500,000 from the Merrill Lynch settlement and is participating in a multi-state task force investigating conflict of interest issues at Wall Street firms. < p>

• Promissory notes. These are short-term debt instruments often sold by independent insurance agents and issued by little-


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