The Hindu Business Line : Top ten scams for 2004

NASA scientists are busy with Mars, remotely guiding their vehicles to send us more snaps of the red planet, though geeks wonder if the colours are coming through right. And real estate agents are eyeing the big ball as prime real estate, and so looking for gullible buyers. While, therefore, a Mars Nagar or Mangal Puri is not too remote an idea that can assume scam proportions, NASAA (that is, the North American Securities Administrator Association) has forecast the top ten "scams, schemes and scandals" for 2004, based on the order of prevalence and seriousness. Many of these have a global flavour.

Con artists are going to discover new ways to fleece the public, warns the NASAA. But, ironically, "many of the age-old scams still work to cheat victims of their hard-earned savings". Moral, hence, is that if an investment opportunity sounds "too good to be true", you can be sure that your gut feel is right.

First comes `Ponzi scheme', named after Charles Ponzi who in the 1900s promised 40 per cent returns and bagged $ 10 million. Blame it on the human failing to see goodness in everybody or plain greed, a promise for high returns gets trusting investors. Typically, a Ponzi promoter would use the money from new investors to pay off the old and so on till the scheme collapses.

Next in the list is `senior investment fraud'. As you can rightly guess, the victims are the old who constantly look for good returns for their retired life. Senior citizens are desperate because they can't trust the volatile stock markets, interest rates are low, health care is expensive, and life expectancy is high. They get sweet-talked into "complex investment scams involving unregistered securities, promissory notes, charitable gift annuities and so on" promising good returns.

Third comes pro-note or the promissory note scheme. Pro-note is a short-term debt instrument issued by "little known or non-existent companies" promising high returns - upwards of 15 per cent monthly - with little or no risk. Such a note can become vehicle for fraud "when the issuer of the note has no intention, or capability, of ever delivering promised returns."

Fourth are the unscrupulous brokers who can cut corners or indulge in outright fraud. Therefore, check your broker's statements closely and ask him the right questions - "about unexplained fees, unauthorised trades or other irregularities."

Fifth is `affinity fraud', where the perpetrator uses the victim's "religious or ethnic identity to gain their trust and then steal their life savings." And `insurance agent securities fraud' comes sixth. These agents, usually not professionals, sell high-risk investments, talking of "high returns with little or no risk". Prime bank schemes are the next menace offering "triple-digit returns through access to the investment portfolios of the world's elite banks" or "risk-free guaranteed high yield instruments."

Next on the list is Internet fraud, where the cyberspace is prime hunting ground. "Cyberfraudsters took in $122 million in 2002." One simple tip: "Ignore e-mail offers from individuals representing themselves as Nigerian or West African government." Just "hit delete." `Mutual fund business practices' that are unfair are ninth in notoriety. Practices such as `late trading' can cost investors heavily. `Variable annuities' come last. Here, investors are kept in the dark about "high surrender charges and the steep sales commissions".

In India, we have already had bank scam, stock scam, CAT scam, stamp scam and so forth. Will there be innovations this year on the scam scene?

SayCheek@hotmail.com

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Top ten scams for 2004