Commonly used scams
There are a variety of scams commonly used to steal money from unsuspecting victims. Here are a few:
The Ponzi scheme
Many investment opportunities are actually Ponzi schemes, in which early investors are paid off with money contributed by later investors. This makes the early investors believe that the system actually works and encourages them to invest even more. Ponzi schemes eventually collapse because there are not sufficient incoming funds to continue stimulating earnings with the ever-growing number of investors.
The pyramid scheme
Pyramid schemes are really just plans that move wealth in only one direction: up to the top of the pyramid. This creates incentive for the investor to get to the top of the pyramid. Variations of this plan are at the heart of many fraud schemes.
For example, with $2,000, the victim buys a "slot" on the bottom line. This purchase is accomplished in this example, by giving $1,000 to the investor on the line above, and $1,000 to the investor in the top position. The name of the top player is then removed. Pyramid success occurs when all the slots on the victim's line are filled and the victims are able to progress up the chart. When an investor finally moves into the zero position, he or she can begin collecting up to $14,000.
At the heart of each pyramid scheme is the representation, expressed or implied, that a new participant can recoup his original investment by simply finding and inducing two or more prospects to make the same investment. It sounds easy, but what promoters fail to tell investors is that this is mathematically impossible. For everyone to win, an infinite number of investors are needed to fill the chart from the bottom up.
Multi-Level Marketing (A legal pyramid scheme)
Multi-level marketing (MLM) plans are a way to sell goods or services through distributors. These plans usually promise those who sign up to be distributors commissions on their own sales of the plan's goods or services and on the sales of the people they recruit as distributors.
The reason MLM schemes cannot succeed is because MLM marketing is, in essence, a legal pyramid scheme. The basic idea is for a sales person to recruit more sales persons. This is a very advantageous to those who own the company and supply the products, especially since the sales persons MLM's, are also customers. But it is puzzling why a sales person would think it is to his or her advantage to increase the number of competing sales persons.
The safest bet is to remember the old adage, "If it sounds too good to be true," IT IS, don't take the chance
Winning lottery ticket scam
A victim is approached, usually in a parking lot, by one or two subjects claiming to have a winning lottery ticket. They explain that due to their illegal or otherwise un-recognized immigration status, they are unable to cash the ticket. They either ask the unsuspecting victim to purchase the ticket from them or request good faith money from the victim before they hand the ticket to the victim to be cashed.
In either case, the suspects flee with the victim's money and the ticket (if one is produced) is invalid.
The Nigerian letter or 419 area code scam
The victim receives a letter or an E-mail from a person, usually from an African nation, stating the victim is the last known relative of a recently deceased wealthy person from that country.
The message offers to assist the victim, for a fee, in claiming a substantial inheritance left by the decedent. The victim is instructed to phone the suspect (be wary of 419 area code calls) for more information and/or to provide their bank account information so that funds may be wire-transferred to the victim's account. In some cases, victims are asked to wire thousands of dollars to the suspect as part of the processing fee.
If an account number is provided by the unsuspecting victim, the account is usually depleted within hours.
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