A recent real estate scam bilked hundreds of American and Canadian investors of over $1 million dollars. Some of the perpetrators are in custody, others are still on the run – and the story demonstrates key warning signs of a fly by night fraud.
According the a recent post in The Bryan Ellis Investing Letter, a band of telemarketers working out of call centers in Florida and New York hooked hopeful investors into a house flipping scam involving properties in Detroit, an area famous for its massive numbers of foreclosures and distressed properties.
The scam went like this: the telemarketers cold called the investors, inviting them to participate in an established program for buying houses low and flipping them high to an unnamed hedge fund group. The investors were told they could expect substantial profits from the later sale of the properties they bought – and some bought multiple ones.
But sales to the hedge fund group never happened. The properties were transferred to a shadow company also owned by the telemarketing group, where they remained, earning no profit whatsoever.
Those who had invested deeply in the scheme tried to contact the company’s representatives. But that became increasingly difficult. Contact information was sketchy and the company kept changing it name. Eventually it vanished completely.
The FBI, working with numerous international law enforcement agencies, nabbed a couple of the scam’s perpetrators – but most of the group of 16 remained at large. And although the FBI confiscated over $1 million in proceeds, most investors aren’t likely to see their money again.
Real estate scams in the digital age rely on age old tactics to separate people from their money. Variations include the “Nigerian Prince” type of scam, which feature a desperate foreigner apparently seeking help from an American, the bait and switch in which scammers sell property that isn’t really theirs, and many others. But since so many transactions of all kinds are conducted online, it’s easy for slick scammers to create legitimate looking but fake identities and companies that investors never see. And when the scam goes bad, the perpetrators simply shut down the site and disappear.
That’s what happened in he Detroit scam. Like many others, it raised red flags all along. But investors missed them – or paid no attention. In real estate, as in other arenas, scam artists count on the targets’ inexperience, naiveté and eagerness to make money. The warning signs were there, though – and they’re common to just about any property scam in the digital age.
Lack of contact information. The Detroit telemarketers operated out of call centers in other states. They change the company’s names and offered little or no contact information. The information they did offer wasn’t actually real. And when investors tried to track them down, they ran into dead ends.
Many third party entities. Scammers often operate under multiple names or use a variety of seondary entities to launder money and obscure their trail. The Detroit scammers used a variety of company names and aliases. In a recent case involving the now defunct Secure Investment, investors’ money was held in an ever-changing roster of banks in foreign countries like Poland and Australia, making it hard to track the path of investors’ funds.
Fast talk and a push to make quick decisions. Scammers often press their targets hard, hoping to push them into a decision before they have a chance to think too hard about it. Some resort to all out strong-arm tactics or heart tugging pleas. But the pressure is nearly always on to grab the offer now, beat the clock or avoid disaster.
Few or nonexistent independent reviews or feedback. In today’s world, it’s relatively easy to research a company or find commentary –good or bad- about it in forums and even on Facebook. But that’s virtually nonexistent for scam operations. Or there may be reviews but all are glowing, which is what happened in the Secure Investment case, where the site itself hosted numerous videos purporting to be testimonials from actual satisfied customers. Except that they were done by actors paid as little as $5 for the gig.
It’s an old but often true adage that if something seems too good to be true, it usually is. Scammers are counting on the fact that a target’s eagerness will override vigilance. But as Jason Hartman says in his 10 Commandments for Successful Investing, it’s important to learn about investing and stay in control of your investments to avoid putting your money in the hands of crooks.
King Solomon recommends approaching all things with prudence and wisdom. That’s the way to spot scammers and keep your money where it belongs: in your wallet. (Featured image: Flickr/wonderlane)
Ellis, Carol VanSickle. “Scam of the Day: Detroit Scammers on the Run.” The Bryan Ellis Investing Letter. bryanellis.com. 3 Dec 2014.
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