Tuesday, January 6, 2009

Scam: How to detect fraud and scam sites!

Today, I'll show you how to keep your hard-earned money from being stolen by some unscrupulous persons, companies or websites.

Sadly, quite a few wealthy individuals lost their entire fortune and are now penniless because they invested their money with Wall Street veteran Bernie Madoff. He is alleged to have lost $50 billion.

There are some vital lessons to learn from this incredible Ponzi scheme. By taking some simple preventative steps, you can avoid being wiped out by financial scam artists.

First, you can't count on the state-owned regulators, especially the Securities & Exchange Commission (SEC), to protect your hard-earned money.
They act the same like the police: They are better at finding criminals than preventing crime.

Why the SEC misses most fraud cases
The SEC is often in bed with the investment houses.
George Stigler, professor of economics at University of Chicago and long-time colleague of Milton Friedman, demonstrated this many years ago. Over time, regulatory agencies are corrupted by the companies they regulate.

the end, many ex-SEC employees are hired by broker/dealers to keep the SEC at bay. That's apparently what happened at Madoff Investment Securities.
A team of SEC lawyers investigated Madoff's broker/dealership a few years ago and found nothing amiss.

Second, the Madoff case is so large and hurtful to so many investors, from Steven Spielberg to small Jewish foundations, that the Democratically-controlled Congress will have another big reason to impose another heavy dose of regulation on Wall Street.

Looking back, investors have only themselves to blame if they got caught losing their shirt. Mister Bernie Madoff had impeccable credentials on Wall Street. Who can you trust if not the former chairman (founder) of Nasdaq?

But there were plenty of red flags:
  • Refusal of promoters to reveal exactly how Madoff made money: Clients were always told that his option strategy on index funds was "it's too complex" to explain. Smart investors will avoid managed accounts they don't understand.
  • Accounts made money too consistently. Madoff's managed accounts showed steady returns of 10-12% year in and year out, through bull and bear markets. Madoff promoters claimed that Madoff's funds "never" lost money - no such guarantee is possible with managed accounts.
  • Madoff's managed accounts had no separate custodian and no independent outside auditor (other than a small 3-man accounting firm).

How can you avoid financial fraud?

Three simple rules:

1. Manage your own funds as much as possible with large, reputable discount brokers where the federal insurance guarantees accounts.

2. If you turn your money over to another's management, make sure you diversify into several managed accounts.Otherwise it could leave you penniless if fraud happens. Managed accounts should preferably buy publicly-traded, no-load mutual funds and exchange traded funds/notes, whose value can be tracked daily.

3. And most importantly, you should make sure all managed accounts have separate custodians and independent, outside accountants to audit your accounts.

How can you avoid scam sites?

Three simple rules:

1. If you have to pay money for the access to a website, search first in Google, Yahoo or any other search webpage if other persons have experience with that website and if their information is worth the money!
A good source for these experienced persons is myLot. On the right side is the link for the "make money" interest. There you find many discussions about sites who pay and sites who are not worth the money!

2. Look out if there are free information available in the Internet about the topic you search before you sign-up with a website for which you have to pay for these informations.
Example: Paid Surveys

3. Don't trust websites who give you a huge amount when other websites (the majority) pay only a percentage of this amount regularly to their users (mostly some of the Paid to Click-Sites who promote they pay you 1 or more $ for one click on their ads). In the end you just get a lot of "spam" mails from them!

The list with Scam-reporting Internet pages can be found in this posting!

Hope it was a useful information, just leave me a comment and share your thoughts or stories, where you got scammed or what prevented yourself of getting scammed!

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