Common Types of Conversion Fraud
Converting a customer’s funds – essentially stealing – can occur in various forms.
For example:
Bogus Promissory Notes
Sometimes, people who handle your money can be dishonest.
Imagine a situation where a broker, the person you trust with your money, offers you a chance to invest in a promissory note. A promissory note is like a promise to pay you back with interest for the money you lend.
However, in this scam, the company you’re supposedly lending to doesn’t exist. The broker creates fake documents to make everything look real. They convince you to hand over your money for a promise that ends up being a lie.
This type of scam is very tricky. Everything looks legitimate, but it’s all made up to steal your money.
Unauthorized Borrowing
Another way brokers can dishonestly take your money is by borrowing it without permission. In this scenario, a broker might ask if they can borrow money from you, promising to pay it back. However, once they have your money, they don’t return it.
Brokers are not allowed to borrow money from their clients. This rule protects you from losing your money in dishonest ways. When a broker breaks this rule and fails to return the money, it’s a serious misuse of trust and a form of theft.
Ponzi Schemes
Ponzi schemes are investment scams that rely on using money from new investors to pay off earlier investors. This makes it seem like the investment is successful and profitable. They’re named after Charles Ponzi, who used this method in the early 20th century.
In a Ponzi scheme, a broker might convince you to invest by promising high returns with little risk. However, the so-called profits paid to earlier investors are just the money from new investors. There’s no real investment happening.
The scheme eventually falls apart when there are not enough new investors to continue paying the earlier ones. This can lead to many people losing their money.
Targeting Unseasoned Investors
Fraudulent brokers often target investors who are new to investing or may not have as much experience, such as the elderly. These investors are usually seen as easier to deceive because they might not know what signs to look for in a scam.
The fraudsters take advantage of their trust and lack of knowledge to convince them to part with their money under false pretenses.
All investors, especially those who are just starting out or may not feel confident in their investing knowledge, to use caution. Seek advice from trusted, reliable sources before making any investment.
Misuse of Funds
In some cases, a financial advisor or broker might misuse the funds you invested for purposes you did not authorize. This could mean using your money to invest in high-risk ventures without your consent or even using it for their personal expenses. Such actions betray your trust and can lead to significant financial loss.
Investors should check account statements regularly. Question any unexpected transactions or withdrawals.
Unauthorized Account Transfers
Another tactic is when brokers move money without permission. They might shift funds between investments or send money elsewhere. This can go unnoticed as part of regular account management. Watch your account closely and set up transaction alerts to combat this.
Fake Check Scams
In a fake check scam, the victim receives a check and is asked to deposit it into their bank account and then transfer some portion of the amount elsewhere. The check, however, is counterfeit.
By the time the bank realizes this, the scammer has already received the transferred money. The victim is left responsible for the full amount of the fake check.
Be wary of any arrangement that asks you to deposit a check and then send money on, no matter how legitimate it may seem.
Crowdfunding Fraud
Crowdfunding platforms are increasingly popular for raising funds for projects or causes. However, they’ve also become a venue for fraudsters who create fake campaigns to solicit funds from sympathetic supporters.
These campaigns often tell a compelling story to tug at the heartstrings of potential donors. However, the money collected is used for personal gain rather than the stated cause.
Always research the legitimacy of a crowdfunding campaign and its organizer before donating.
Protecting Against Conversion Fraud
Consider implementing the following practices to further protect your finances:
- Use Secure Networks: When conducting financial transactions online, make sure you are using a secure and private network. Public Wi-Fi can be a hotbed for cybercriminals looking to intercept your data.
- Two-Factor Authentication: Enable two-factor authentication for access to financial accounts whenever possible. This adds an extra layer of security beyond just a password.
- Legal and Financial Consultation: For significant investments or financial moves, consult with legal and financial professionals to verify the legitimacy and safety of the transaction.
Filing A Conversion Fraud Claim
Fraudulent conversion claims are complex and require substantial proof of damages. For example, if a broker stole investment money, there needs to be proof of your financial losses.
Or, if someone has stolen property from you, but returned it without you having suffered any damages, there would need to be proof of business harm or personal damages.
Without proof of damages, you do not have grounds to file a fraudulent conversion claim. However, if you do have proof of damages, with help from an experienced business tort attorney, you can file a claim and hopefully recover your financial, business, or personal losses caused by conversion fraud.
