Scammers and those being scammed, part two

“At the bottom of Multi-Level Marketing — a scummy business at best — lurks Global Prosperity. The slimy-est of the slimy MLM programmes, none is more of a scam, or has such a disreputable background, as Global Prosperity and its many equally-sordid spin-offs.” Quote from Quatloosers Hall of Shame.*

The Global Prosperity Group — the Gateway to Financial Freedom (and similarly-related names) sounded wonderful. The excitement was palpable in the client who asked me years ago (1999) to review this offering. But, no matter where we searched on the internet none of the websites connected to this scam had any tangible evidence, even the basic disclosures on executives at the top (or bottom), operations, financial statements, contact personnel and so on was non-existent. Literally, no disclosures at all.

Global Prosperity (in anecdotal comments to me) had all of the relentless hype and buzz words still used today to solicit honest trusting individuals: become financially free, a unique financial explosion in your life, earn referrals by helping sell to friends, neighbours, church community, get free trips, dinners, have the ability to get in on the ground floor of an Initial Public Offering (IPO), only for selected people who have the courage to envision their financial future, invest like prominent businesspeople, politicians, luminaries.

Time dragged on, a couple of years lapsed. The client had ignored our advice and invested anyway. Big money. Then the talk — about no refunds of deposits or investments — started to circulate regarding this particular scheme. That big wonderful financial vision of freedom was a scam, after all.

It was appalling at the time, to realise that outside “suitcase salesmen” of various types had been allowed into Bermuda. Foreign financial investment salespersons do not appear to be held to the same standards, regulations, and Acts (ie the Bermuda Investment Business Act: General Code of Conduct) as domestic Bermuda investment firms and their personnel. In reality, few individual investors understand the difference, particularly if “wonderful financial programmes” are not represented as securities-type investments, but rather as educational presentations.

The human financial wreckage was devastating. At a senior retirement presentation years ago, more than one couple told me they had invested most of their life savings in Global Prosperity and some related products. The money is gone, gone — never to be recovered because there was no recourse against a scam organisation operating outside Bermuda.

One couple, emotionally declared that the scam destroyed their trust in their friends, community, and worst of all, their church.

Justice was eventually served, but seven years too late to recover the victims’ money. The US Department of Justice caught all major individuals in this particular scam for tax evasion and money laundering, because, naturally, the perpetrators secreted the proceeds of their crimes in offshore bank accounts — not on this Island. Ultimately, more than US$120 million stolen. Read about it here, if you can bear revisiting these scams at Quatloos! Reference the sources below.

Why do these scams work? In my opinion (as a Bermudian) we Bermudians still tend to have an insecurity complex when it comes to so-called experts arriving in dash and flash from the outside world. We rely upon their “axepert” opinions unqualified when the very first thing we should do is check their provenance — a fancy word for who are they are, their background and experience, where did they come from, what are their real credentials, and how do they qualify to call themselves experts?

Bermuda, in those days pre-2000, was not as connected as today. No Facebook, no LinkedIn, few easy-to-use search engines for most people, no mass production of smart phones on menu as yet. Today, Google search is your best friend. Type Global Prosperity scam into the search line — 130,000 results — pretty bad.

How do you know you are being scammed? It is not always easy to tell.

Here are a few guidelines — but keep in mind that scammers are always operating ahead of the crowd. Scammers work full-time at their goals.

1. Never, ever, give all of your savings to any one investment scheme, legitimate or not, great returns or not. That is what diversification is all about. DO NOT SUCCUMB to the temptation to join the crowd.

2. Be aware of being approached to buy-in to a business selling products or services, then being required to recruit other new people to “buy in” to the business as well. Each level of individuals “buying in” pays some percentage to the person who recruited them. Hence the title, Multi-level Marketing. Typically, the product or service is over priced or the market quickly becomes saturated, as in the case of travel scams. So, while new people “buy in” to the business, there is less expensive product or service being purchased. Eventually, sooner rather than later, the scam collapses under its own weight. The only people making any real money are those who started at the top of the Pyramid Scheme, another scam word and real securities fraud prosecutable in the US and elsewhere!

3. High interest rates — 15 per cent-20 per cent, advertised as guaranteed, no-risk. The first question always to ask is — how are you getting these high returns? Consider that the risk-free US treasury is returning between two per cent and three per cent. Anything above that interest rate carries a risk of loss. Two things to remember, if the investment loses value it could be more than 20 per cent, and if you don’t understand how the high rate of return is enabled, it is time for you to do a Warren Buffet walk-a-way. He famously stated that he never invests in anything he does not understand.

4. Trust but always independently verify — preferably with someone licensed, credentialed and completely unbiased and distant from your circle of relatives, friends, community leaders.

Be aware, be alert, be careful — always independently verify any and all e-mails, phone call offers, and pleas from friend, co-workers, and family to join the new, new way to make “big money quick”. Money is earned, carefully, slowly, and with people of integrity. The rest are just thieves out to take advantage — don’t let it be you!

Readers. Scams and fraud are a fascinating topic. The sheer number of scams (and their complexity) out there are way to numerous to describe or mention in one or two articles. So, each Month, as a regular feature, the scam of the month will be detailed for your salacious reading.

Next month: How friends, family and strangers take away the property and civil rights of elderly individuals. Learn how viatical settlements need elderly people with life insurance to make the scheme work. Lonely hearts ads.

Reference sources

*Investment Fraud documented by Quatloos!, a Financial & Tax Fraud Education Associates, Inc, a non-profit corporation. http://www.quatloos.com/Investment_Fraud.htm

**Understanding Multi-Level Marketing 101. Biggest point. They are all scams.

*** Identity Theft Resource Center (a non-profit consumer website) This is an excellent source of scams of all kinds, and no cost help if you have a problem.

http://www.idtheftcenter.org/Protect-yourself/scams-alerts.html

Martha Harris Myron CPA CFP JSM Masters of Law: International Tax and Financial Services. Appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. The Pondstraddler Life Consultancy: planning, publications, presentations on international tax, immigration, investment, retirement, legacy, and related financial challenges to the lifestyles of internationally mobile individuals and their businesses residing, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle. Specific focus for residents of Bermuda. Contact: martha@pondstraddler.com