If it sounds too good to be true …

Posted by on December 16, 2009 @ 9:00 am in personal finance

I’ve written about financial fraud involving seniors before, and it remains a serious concern. Unfortunately, there’s not much we in the investment industry can do beyond warning our clients to be vigilant and working through issues when they arise. As with any sort of fraud, the best defense is an educated and skeptical investor.

Let me share a recent situation encountered by one of Vanguard’s client-service phone groups.

One of our associates received a call from an 80-year-old client. Let’s call him Mr. Smith. He was about to receive a large sum of money and wanted to discuss his investment options. During the call, Mr. Smith explained that he had received a letter from an attorney in Africa informing him that one of the attorney’s clients had died and Mr. Smith was the next of kin. Mr. Smith was purportedly to receive $6 million as a first installment on the “inheritance,” but was asked to put up $2,300 to cover “administrative costs.” The letter included instructions for wiring the money.

The Vanguard crew member had the presence of mind to ask for details about the situation. He learned that Mr. Smith had already given the “attorney” his bank information, and was on his way to a Western Union office to transmit his money to Africa.

With Mr. Smith still on the line, our associate searched the Internet and found several reports about similar schemes. Unfortunately, the crew member couldn’t convince Mr. Smith that this was probably a scam. But he alerted our Fraud Department, and we called Mr. Smith immediately. He continued to be a tough sell, as he really thought this transaction was legitimate. Persisting, we strongly suggested that he call the FBI and ask them to confirm our suspicions. That was as far as we could go.

We later followed up with Mr. Smith. Fortunately, he did contact the FBI, and was persuaded that he’d been scammed.

This story ended well. But for some “Mr. Smiths,” it doesn’t.

Each time we run into this sort of situation, it’s tough to convince the shareholder that someone is out to take his or her money. Whether you’re being promised a risk-free investment, guaranteed returns, sweepstakes prizes, or a surprise inheritance, it’s important to approach any financial offer with caution and check everything out. Because if it sounds too good to be true, it probably is.

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