Why Some People Always Get Scammed
In a very interesting news article Melissa Mixon writes about how Sun City Texas residents cope with loss in investment scam.
The particular scam in question was Mobile Billboards of America. This was the classic securitization of a business opportunity fraud. The usual business opportunity fraud sells to distributors "turnkey" packages, for example the sale of ATMs and a location assistance. These business opportunities are frauds because if the seller had any real ability to locate ATMs, then they would not need your money.
The securitization of a business opportunity fraud takes the fraud to one more abstract level. Instead of selling ATMs and location assistance, the seller sells an "investment opportunity" -typically pitched as a high yield/low risk investment. The securitization of the ATM business opportunity fraud works by selling the investor on a stream of income from the ATMs that are located. In this case, there are no ATMs, not even third class machines, there is only a income stream which is funded by future investors.
The Mobile Billboards of America was the ultimate securitization of a business opportunity fraud - less than $10,000 of the money raised actually went to purchasing mobile billboards.
Melissa Mixon explodes a number of "known" myths about business opportunity frauds.
- Business opportunity purchasers are not sophisticated. "They're an older group of people. If they haven't been scammed, they know someone who has, so these are cautious people out here," Culp said. "They haven't just fallen off the turnip truck."
- The salesmen peddling the scams are always in the know. But "Ruark said he saw an advertisement for the billboard company in a professional publication that he and other insurance agents received. He said he responded to the ad and investigated the company before he started selling investments." Ruark eventually plead guilty to selling unregistered securities. "Ruark was sentenced to 45 days in the Williamson County Jail and 10 years of probation for each count and ordered to pay $138,100 in restitution. He's currently in jail."
- Fraud is always "too good to be true". But Mobile Billboards "claimed to provide investors with the chance to buy advertising on semi trucks and get monthly payments for an annual return of 13.49 percent over seven years." While 13.5% is high, it is not an absurd rate of return for a novel scheme.
Of course, Mixon does report on the usual depressing news about fraud.
- What can investors expect from a recovery? "Crawford said she doesn't know how much money Sun City investors will get from the restitution, but in cases of security fraud, "it's very rare that they get anything back."
- And how forthcoming are the defrauded investors? "All but one of the victims would speak only on the condition of anonymity, saying they fear being targeted for other scams or losing their jobs."
All of this hardship could have been avoided if a single resident knew about the FTC requirement for business opportunity sellers to provide real disclosure to purchasers. Can you Google "business opportunity fraud"?
