Thursday, September 12, 2013

Financial fraud is rampant but most people can't spot it

Most people in the United States have been targeted by financial fraudsters, while nearly half are unable to spot classic red flags of fraud.

For example, more than 40% of people surveyed for the Financial Fraud and Fraud Susceptibility in the United States report, which was released today, found an annual return of 110% for an investment to be appealing, while 43% felt that way about “fully guaranteed” investments.

“These outsized returns are highly improbable, as are any sort of guaranteed returns,” said Gerri Walsh, president of the Finra Investor Education Foundation, which issued the report.

“Bernie Madoff was offering guaranteed returns of 12%, which isn't even an outsized number,” Ms. Walsh said. “But the market conditions didn't matter. He was offering consistent annual returns.”

The survey found that more than 80% of respondents had been solicited to participate in potentially fraudulent financial schemes, while 40% could not identify some classic red flags of fraud.

The large share of Americans still attracted to persuasive conmen doesn't shock Ms. Walsh. What was more surprising to her was the extent to which defrauded investors underreported their status as victims.

Although 11% of respondents said they lost money when they were prompted by specific types of schemes (such as e-mail scams and free-lunch sales pitches), only 4% admitted to being a victim of a fraud when asked directly. “That's an estimated 60% underreporting rate,” she said.

Of those who admitted to being defrauded, 45% reported the fraud to someone, but the remainder found reasons not to. Among those who chose not report, the most common reason was, they didn't think it would have made a difference, followed by not knowing to whom they should turn. Embarrassment also played a key role in underreporting, according to the survey.

Though the report points to the elderly as easy targets for financial scams, the group willing to take the most risk in hopes of higher returns is well-represented among younger males with high income and education levels.

Source:  Michael Shagrin, Investment News

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.



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