A Guide to Recognizing and Avoiding Common Financial Scams

A Guide to Recognizing and Avoiding Common Financial Scams

December 19, 2023

At LPSC Financial, safeguarding your hard-earned money is crucial to building wealth for generations. In today's interconnected world, financial scams are becoming more and more prevalent, with scammers targeting vulnerable individuals online, over the phone, through the mail, and more. As your financial advisors, we believe it's crucial to equip you with knowledge to recognize and avoid these scams.

Recently, the team received a series of inquiries from clients that were revealed to be scams in various degrees. We appreciate your trust in us to help decipher these scams. As a rule, if something feels wrong to you, it probably is.

Here are some common financial scams and how you can steer clear of them:

1. Phishing Scams:

Be wary of unsolicited emails, texts, or calls requesting personal information. Legitimate organizations rarely ask for sensitive details via these channels.

You’ve likely seen these before; fortunately, most scam emails are filtered out and sent directly to your spam folder. However, as scams become more sophisticated, they can bypass the spam folder by using familiar names and addresses. Known as spoofing, the email scam takes advantage of your trust in known people or brands to solicit money or sensitive information like your social security number.

ALWAYS verify the sender's authenticity before sharing any personal data. Look at the email address; many of these scams will have a nonsensical sequence of numbers and letters (aZxys707070702222@noreply.com) while the name reads “John Smith.”

Ponzi and Pyramid Schemes:

You’re likely familiar with the Bernie Madoff investment scam of 2008, which defrauded investors of up to $64.8 billion. Not all financial schemes are this large; pyramid schemes can come in all shapes and sizes. The common thread of Ponzi or Pyramid Schemes involves investment opportunities promising unusually high returns with minimal risk.

More recently, unregulated cryptocurrencies like Safemoon have been charged as ponzi-type schemes. The money is taken from investors with the promise of substantial growth; in the case of Safemoon, the US Department of Justice alleges that tens of millions of dollars were taken by the creators for luxuries unrelated to the business, thus defrauding investors.

Researching investment products is a top priority. There are very few examples of profitable “low risk, high reward” opportunities throughout history. If it sounds too good to be true, it probably is.

3. Identity Theft:

Your identity can be more lucrative than a direct financial scam. Internet “leaks” of data can cause your name, home address, birthday, credit card, or social security number to fall into the hands of digital scammers.

When scammers have this information, they can open up new credit cards or bank accounts, request loans, steal your tax refunds, or even get medical care in your name. When your identity is stolen, the steps to recovery can be very timely and costly.

Protect your personal information diligently. Shred documents containing sensitive data, use secure passwords, and regularly monitor your credit reports for any irregularities. Be cautious with sharing personal details online or over the phone.

5. Charity Scams:

We’ve discussed the importance of charity in the past. Charity is a crucial part of our society. Unfortunately, scammers can take advantage of our giving nature. In 2022, $21 million was lost to charity fraud.

Before donating, ensure the legitimacy of charitable organizations. Research the charity, confirm their registration, and be cautious of urgent donation requests without proper verification. Charities must be registered with state and federal governments, so you should be able to find legitimate charities listed on government websites.

6. Ransomware Attacks:

Protect your digital assets with strong cybersecurity measures. Regularly update your software, use reputable antivirus programs, and back up your data to mitigate the risk of ransomware attacks.

7. Lottery or Sweepstakes Scams:

Exercise caution if notified of winning a lottery or sweepstakes that you didn't enter. Genuine winnings don't require upfront fees or personal information for claiming prizes.

A very common scam is the Publisher’s Clearing House lottery scam; it has become so common that the US government even put out a warning. While PCS is an actual business, spoofers will call or email stating you’ve won $1 million on behalf of the company. The scammer will ask for personal information to transfer your winnings to you — while the prospect of being a millionaire is exciting, this is not how PCS contacts winners.

If you are ever unsure about communication from a person or business, always look up the phone number/email that is contacting you to verify it. If all else fails, contact the company’s customer service directly.

At LPSC Financial, our commitment goes beyond managing your investments. We prioritize your financial well-being and aim to empower you with knowledge to make informed decisions. If you ever encounter suspicious financial activity or have uncertainties about an investment opportunity, don't hesitate to contact us. Your financial security is our top priority. Stay vigilant, and stay informed. Together, we can thwart these financial scams and protect your financial future.