Scamlines 37: Big Investors Lose $50 Billion in Largest Ponzi Scheme Ever

Record Ponzi scheme detailed, new ID theft attacks and fake game console warning

Proof, if it were needed, that even the most experienced and respectable of investors can be hoodwinked by a well-designed investment scam comes this month with the collapse of a huge so-called Ponzi scheme in New York.

It’s the talk of Wall Street and investment centers worldwide, with losses said to be around $50 billion. We bring you the story in this latest round up of the scam headlines.

We’ve also picked up on several new phishing and ID theft cons currently in play, a warning on fake Nintendo game consoles, and news of bogus utility workers hoping to cash in on the cold weather.

Then there’s the story of the supposed passed-out poisonous business card that’s supposed to make you pass out.

1. $50 billion disappears in “world’s biggest financial fraud”

The scam: It’ll take years to unravel and some very embarrassing questions will have to be answered, but there seems little doubt that the world’s biggest-ever financial fraud, an alleged Ponzi scam, will cost investors a stunning $50 billion.

International banks, charitable trusts, money managers and scores of private individuals number among clients of an investment fund run by Bernard L Madoff that collapses after Madoff allegedly admits it’s a scam.

He tells his sons it’s “a giant Ponzi scheme”, named for the original perpetrator of this type of scam in which earlier investors are paid off with money from later ones until money stops coming in — forcing the firm into bankruptcy.

The solution: What’s worrying about this case is that there’s little an individual could do to spot the fraud. Madoff was a highly reputable Wall Street money man.

The answer lies with the vetting and investigations procedure of the Securities and Exchange Commission (SEC). Sadly, the SEC fessed up after the Madoff collapse that it was tipped off about the problem years ago but missed the chance to uncover the scam.

Questions are being asked, faces are red. Answers and action will be needed to ensure this never happens again.

Read more about safe investing and how to spot Ponzi schemes here.

2. Class action phone call is just an advance payment scam

The scam: Most of us have probably received one of those hefty legal documents telling us about a class-action suit against some company or another we’ve dealt with in the past, which may lead to a payout.

This adds authenticity to a telephone scam in South Carolina, where residents get a call saying they have cash coming from the recent settlement of just such an action.

But it’s merely another advance payment scam. The caller wants money supposedly for legal fees and taxes before sending payment.

The solution: Class action suits do not operate this way. If you’re entitled to benefit, you don’t have to pay anything upfront, and notifications always come in writing, not by phone.

Read these other Scambusters articles on advance payment scams and business scams here.

3. “Auto insurance” caller demands SSN and bank details

The scam: Columbus, OH, residents get a call saying there’s a problem either with their auto insurance policy or with a payment connected to the policy.

They’re asked to provide personal details including Social Security numbers and bank account details, so the problem can be rectified. It’s a blatant phishing attempt — a prelude to identity theft.

The solution: Ask anyone claiming to be from your insurance company to give you their name and phone number, saying you’ll call them back.

This will scare off most scammers but if they do give a number, verify it on the Internet or with insurance documents before calling back.

More about phishing here.

4. Tiny card charge signals ID theft test

The scam: Staying on the theme of ID theft, Kansas City folk are being told to scrutinize their credit and debit card statements after a local bank alerts a customer about a mystery, tiny 26-cent charge on his account.

Authorities say identity thieves are testing accounts, using stolen card numbers, to see which ones are active. They await the payment and hope victims won’t spot such a small transaction.

Once they know the account is operational, they empty it as fast as they can.

The solution: Always check every item in your card statements and immediately query anything you don’t recognize.

For more helpful information, visit the Scambusters identity theft information center.

5. Another new twist on IRS scam

The scam: Another “nifty” phishing attack turns up this month in the latest variation of a supposed IRS email.

Victims receive an email regarding a Form W-4100B2, with a message saying “our records indicate that you are a non-resident alien”. They’re supposed to click a link to the form, which, of course, seeks personal information.

The solution: Alien or not, this is not how the IRS contacts people. And you don’t ever have to fill in forms online. If in doubt, contact the IRS.

More details on other IRS scams in this article.

6. Nintendo fakes pose fire risk

The scam: It’s not unusual for kids to get cash in their Christmas stocking these days — and then to spend it on the latest game console. But beware of cheap knock-offs that could actually be dangerous, says the UK Customs Department.

Fake Nintendo DS and DS Lite games are being sold on the Internet for a fraction of normal cost. But they have power adapters that could burst into flames.

The solution: First, apply the TGTBT (Too Good To Be True) rule here. Then check the item is in a sealed package, with relevant safety documentation. The forgeries don’t have these.

7. Cold weather scammers turn up the heat

The scam: The worst of winter brings out the worst of scammers. In ice-bound Worcester, MA, hundreds of homes suffer a power outage.

Soon con merchants arrive on their doorsteps, claiming to be from the power company, asking for payment (in cash of course) to restore their electricity.

The solution: Utility companies don’t normally charge to restore power. In the unusual circumstances where they do, costs are billed — not charged at the front door.

Carefully check — and verify by phone if necessary — the ID credentials of anyone claiming to be from a utility company.

8. Stand-by for the Burundanga poison hoax

The hoax: Received an email yet warning you about a poisoned business card?
 It goes something like this: The author of the message allegedly meets a guy at a gas station who says he’s a painter and gives her his business card.

As she drives away, she feels faint and notices a smell on her hand. In her rear-mirror, she sees she is being followed, so, ready to pass out, she pulls on to the driveway of a house and sounds the card horn.

In alarm, her pursuers drive off and it later turns out the card was laced with a poison called Burundanga.

You’re asked to circulate this email as a warning to others

The solution: More likely, the poison should have been labeled Baloney. Because that’s what this story is!

Visit our Urban Legends and Hoaxes Resource Center for more about how to sniff out these tricks.

That’s it for today. More next time…