The axiom, "If it sounds too good to be true, it probably is," remains an enduring and unassailable truth. But during the stubbornly long-running downturn, desperate people suspend disbelief.
Since 2009, the Federal Trade Commission has been tracking get-rich-quick scams under the rubric Operation Short Change. "We're a small agency," the FTC's Mitchell Katz says. "So we have to really focus our attention and our resources on the scams that do the most damage." Since the Great Recession began in earnest, those scams have been what Katz called "bottom-dollar scams" – as in, "bet your bottom dollar." They prey on vulnerable people who need debt and mortgage relief and are targeted at those most desperate for that kind of help. "Fraudsters know government agencies exist to help those people, and they try to trick people into thinking they're with the government."
Hundreds of thousands of people have been duped since 2007, and even with increased regulation, they’re still falling for them. In 2010, “scammers had a field day,” said CEO Stephen A. Cox of the Better Business Bureau in a press release. The biggest FTC case in 2009 involved John Beck’s Free & Clear Real Estate System, a “company” that promises easy real estate investments with little to no money down, and conned more than 600,000 people out of nearly $300 million. If you're looking into a business venture, you'd probably be well served to look twice ... and look elsewhere.
1) Free Government Money – Not long ago, crudely Photoshopped images of President Obama waving a fistful of bills above big red letters announcing "Free Government Money" were nearly plastered on the Internet. While government grants do exist, the people behind those ads, and others like the infamous Matthew Lesko, generally have no better access to information on (real) government grants than anyone else could find at Grants.gov.
The Utah-based scam that operated under the name I Works, which was charged by the FTC in 2010, used a whopping 51 shell companies, complete with phony executives and fictitious websites, to make millions selling access to government grants that, in many cases, didn't even exist. And, of course, that "free" money came at a cost: Though the initial fee was only $1.99, once I Works got credit card numbers, they charged a $130 annual fee, and up to $60 in monthly charges without customer agreement. "If you have to pay money to claim a 'free' government grant," the FTC warns, "it isn't really free."
2) You've Won A Foreign Lottery! – Funny, you don't remember having bought a ticket for Ireland's national lottery. While the Irish National Lottery does actually exist, these successful scams will eventually request processing fees or taxes on those "winnings." The U.S. Postal Inspection Service destroys millions of mailings each year in an attempt to stem this long-running scam, but the USPS estimated back in 2009 that Americans were hustled out of more than $120 million per year through this type of fraud. Never mind that it's illegal for American citizens to purchase tickets in foreign lotteries by mail or by phone, let alone claim those winnings; the bigger question is why anyone would think they had won a lottery they didn't even enter. "People know they didn't register," Katz said. "But people also want to have hope, I guess."
3) Mortgage Modification, Just In Time – Whether it arrives by email, in an envelope or over the phone, an offer to modify an underwater mortgage – or get a home out of foreclosure – is one that millions of Americans would be overjoyed to accept, especially when it comes with a money-back guarantee from a company boasting a success rate of nearly 100 percent. That was the pitch that David Mahler, John Incandela, Jr., and Jamen Lachs made to desperate homeowners under a host of different names, typically asking for half of the $2,600 fee up front. However, the modifications weren't made, the refunds were never issued, and the FTC charged the three with two counts of fraud in March of this year.
Scams like this one are especially devastating, Katz says, because "they tell you to stop paying your mortgage, which of course leads to people losing their homes. So they give out some advice, but it's the worst advice they could give." Earlier this year, the FTC issued the Mortgage Assistance Relief Services Rule, which should make things harder for similar fraudsters by outlawing the up-front fees that fuel this sort of scam. But as long as mortgages need modifying and homeowners remain desperate, this sort of fraud looks likely to remain.
4) Get Out Of Debt Now – It's not just the government that has debt issues – many Americans are carrying debt that can take decades to pay off. So an opportunity to help consolidate, renegotiate and reduce those debts would seem worth the initial fee that many debt-consolidation scammers require. But as with most recession scams, the up-front fee is a red flag. Once debt-relief scam artists get that fee, most don't negotiate with creditors at all. The same new FTC rule that prohibits up-front fees for mortgage modification bans them for debt-reduction services, which is good news. And good timing, too. The Better Business Bureau estimated that debt-reduction scams spiked by 30 percent in 2010.
Still, fraudsters continue to take advantage of too many Americans who have too much debt. One, a robocall-powered scam called PDM International, charged four-figure fees for dubious debt-reduction services and used deceptive tactics like having the calls sound similar to a credit card company. Luckily, the FTC broke up the scammers and fined them $13.8 million in late May.
5) "Gold Is Your Safest Investment" – Most of these get-rich-quick scams have some basis in the real world – people do win the lottery, and government grants and loan-modification programs do exist. By the same token, gold generally is a good investment in uncertain economic times. But gold's rising value doesn't mean that every investment in gold is legitimate. For the most part, cash-for-gold concerns like the straightforward Cash4Gold.com, and the gold bug-baiting operations that run commercials on late-night television, are more not very good investments than scams. But one, American Precious Metals LLC, crossed the line into scam territory, according to charges filed by FTC and Commodity Futures Trading Commission.
American Precious Metals scammed seniors out of $37 million with a hard-sell telemarketing pitch, offering low-risk investments in silver, gold and platinum that would double or triple in value in a short time. They allegedly extracted commissions and fees and parked the money in a clearinghouse. One duped investor wrote on PissedConsumer.com that they charged him $15,000 in fees for a $38,000 investment and that he lost another $11,000 within days of opening an account. The moral of this story is gold is only a safe investment if you're actually invested in gold. Otherwise, it's just a scam.