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The Honolulu Advertiser
Posted on: Thursday, January 15, 2004

10 money scams to watch out for

By Deborah Adamson
Advertiser Staff Writer

It cost 89-year-old Violet Griffin $900 to get her mango tree partially trimmed.

A few months ago, the Salt Lake area retiree was approached by a man purporting to be her neighbor who offered to trim her tree for $500. He did some trimming and said he would come back the following day to finish the job. She never saw him again. Griffin's daughter had to hire someone to haul away the branches and clean up the retiree's yard — at a cost of $400.

"If he didn't say he lived across the street, I wouldn't have hired him," said Griffin, who lost her husband a month before she was scammed.

Elder abuse is one of the top 10 scams in Hawai'i and across the country, according to the state Department of Commerce and Consumer Affairs, citing a national survey released yesterday by the North American Securities Administrators Association.

Other popular scams run the gamut from Ponzi schemes to fraudulent or high-risk investments and Internet scams, the report said. This year, the mutual fund scandal rocking Wall Street also made it to the list after fund managers were hit with allegations of market timing and illegal late trading.

State Securities Commissioner Ryan Ushijima said the national list reflects the types of scams found in the state as well, where swindlers have siphoned off tens of millions of dollars a year.

"In Hawai'i, we have just as much of our share of the problem as other states our size," he said. "We tend to have a population that is sometimes taken advantage of because of our aloha spirit."

"We're less willing to hang up on people. It's not part of our culture when sometimes that's the only thing you can do" to avoid scams, he added. "These con artists are experts on the phone and as long as they can keep you on the phone, their strategy is to wear you down."

Here are the top schemes to watch out for in 2004, with many of them recurring scams:

Ponzi schemes. A type of multi-level arrangement where investors promised high returns are paid with money taken from newly recruited investors. Unlike ponzi schemes, legitimate multi-level marketing programs have viable products and don't over-emphasize recruiting of new investors as the way to make money, Ushijima said. Local ponzi schemes include illegal women's gifting circles where new recruits paid as much as $5,000 to the highest ranking members. If they recruit more people under them, they could eventually receive up to $40,000.

Recently, the state also busted up an Internet services pyramid perpetrated a company called Vision One, Ushijima said.

Fraud against seniors. Elders have been a target of scammers for years. With many living on fixed incomes, they particularly are susceptible to offers of instant wealth especially in an environment of low interest rates.

A 78-year-old retiree recently was scammed out of $50,000, said Detective Letha DeCaires of the Honolulu Police Department's CrimeStoppers program. She was told that she won $4.2 million in a lottery but had to pay thousands of dollars in fees to collect.

Promissory notes. Often sold by independent insurance agents, these are debt instruments that promise super-high returns — such as 15 percent every month. Debt instruments are essentially loans that an investor makes to a company or entity in return for interest and repayment of the funds. But investors never get their money or the borrower couldn't have ever paid the money back.

Brokers who abuse client accounts. A common complaint is "churning," where a broker trades your account often to generate commissions, Ushijima said. Other unscrupulous brokers steal your money outright — putting it into their own pocket instead of opening an account for you.

"Check the person and their firm. Check their background," he said.

Affinity fraud. Con artists take advantage of being in the same club or ethnic group to engender trust from their victims, Ushijima said. Churches are one place where affinity fraud has occurred. Often, these schemes overlap, Ushijima said. A Ponzi scheme could start among members of a church.

Fraudulent or high-risk investments. These promise high returns with little or no risk. They could take the form of opportunities to invest in an ATM or payphone business or viatical settlements. Viatical arrangements occur when someone who's dying sells his life insurance policy to an investor. The terminally ill patient gets access to the money while still alive and the buyer cashes in when the seller dies. But some of these contracts are frauds since the dying patient named either doesn't exist or isn't terminal, Ushijima said.

Prime bank schemes. Con artists convince their victims that they can provide access to elite, off-shore banks where the rich park their money and receive high rates of returns, said Ushijima, who was personally solicited. But the bank doesn't exist. Victims hand over their money — and it's gone.

Internet fraud. Cyberspace is the new frontier for con artists and online fraud is a big problem in Hawai'i, DeCaires said. Ignore any e-mail soliciations that offer dream deals, especially from folks claiming to be Nigerian or West African government officials or business executives.

Mutual fund practices. More than a dozen mutual funds are being investigated for alleged market timing or illegal late trading that could have decreased returns for long-term investors. Ushijima said state and federal regulators are working to clean up the industry.

Variable annuities. Investors may be misled or not told about some annuities that charge high fees or sales commissions. Some are fooled by claims of guaranteed returns when variable annuities are dependent on the ups and downs of the stock market. While often pitched to seniors, these are not a suitable investment for retirees and people who can't afford to lock up their money for at least a decade, Ushijima said.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.