Pyramid Scams: Introduction
Greed can make many people act unscrupulously; especially if they themselves have been scammed into believing what they are saying is the truth. Most pyramid scams are based on this. Pyramids, similar to what is known as Ponzi schemes, are illegal in every state. They are based on making promises that cannot be easily disproved and that appear to work. Many e-mail scams today are based on it. In fact I remember seeing similar things run by classmates when I was in school, oh so many years ago. I doubt the kids knew what they were doing was illegal.
Consider the shape of the pyramid and relate it to this scam. The person at the top comes up with a moneymaking idea: an investment in something that does not exist. For example, they promise everyone that they will invest money in a great company that has been averaging 5% returns a month for the last six years. Only he knows about them and only he can get the money to the investment company. It is usually located outside the United States and does not come under US laws and regulations. If you invest $200, the least they will accept, which is really not much, for three years, you will get a check for at least $10 a month every month for those 36 months, or a total of $360. And you will then get the original investment back. Since the company is building a Costa Rican hotel or a German factory, or digging a Peruvian gold mine, you will never have to report it to our government, as the money was not made in this country.
So you invest the $200 and, sure enough, in a month you get $20 in cash, a whopping 10% return. Then the scammer gives you a new opportunity: he will share half of the fee the company pays him, for every new person you can get to invest. He gets $4 a month for each investor, so if you get 10 people to join you’ll get an additional $20 monthly. Thus the pyramid grows. During the next few months your return may vary between 5 and 10%, so after four months you have gotten at least $60 back, more than a quarter of your investment
If he has 100 people on the hook initially, and runs this scam for four months before disappearing, he’s made $140 from your initial investment (times 100 people) and, if each of those people get 10 more, than those ten get ten more investors, there is obviously a lot on money being forwarded. Some invest more than $200 or contribute additional sums after the amazing 10% return the first month. You can imagine that in four months the quite large pyramid has made him well over $100,000 or even $200,000. He then, suddenly, and with no way of contacting him, disappears. Since only the original 100 people ever met the scammer, or shared e-mails with him, and each of them has profited from those they brought in and are thus unlikely to go to the cops, the scammer rarely gets caught.
The greatest of such scammers, Alyn Richard Waage, used a pyramid scheme to take money from around 15,000 investors. His total was estimated at $60 million dollars. He set up a company called Tri-West Investment Club, and, using a web site and e-mail, told investors the money would be put in safe, high-yield securities. When he was eventually arrested, and jailed in South Carolina, it was discovered that the money had been spent on a private yacht, a helicopter and real estate.
A close friend of mine lives in a small town around an hour from Bogotá, Columbia. His area made huge news last November with the breakup of a country-wide pyramid scam that possibly included as many as a ten percent of the people in the country. David Murcia Guzman, who named his company after himself, DMG, escaped to Panama, but was captured and returned to Bogotá. The 28-year old, executed his scheme for around 3 years, hooking in over 200,000 Colombians who sold their homes to invest with him.
The Colombian newsweekly magazine, Semana, described it this way:
For the last two years, a unique economic situation has calmed the income anxiety of those who live in the Putumayo region, which since the 1990s has based its economy on coca cultivation and harvesting. Many people arrive at the DMG offices as much as two days before the payment day. Months ago they had left millions and millions of pesos in DMG’s coffers. Some lost all of their savings. Others, what they got from selling their house, their car or their farm. There are even some who have taken out bank loans in order to invest the cash in this magical way of increasing their capital. When they arrive at the branch, the person receives the “benefit” of his investment, as agreed in each contract. Interest rates of 10, 15, 30, 50 percent, and during “special offer” periods even 100 percent.
Ten million pesos in DMG’s hands for six months can be turned into 20 million. Or if you prefer a monthly payment, they will give you a million pesos every 30 days. That is, 10 percent. One can choose whichever way one prefers. Either way it is well above what any bank would pay to a savings account holder.
David Murcía Guzmán is the person behind this miraculous system. A young man of less than 30 years about whom little is known in the region. Only that one day he came to six of Putumayo’s 13 municipalities and set up his business. The DMG offices, the local population says, have strong safes to hold the cash that arrives at the regional airports and is transported along the department’s awful roads by armored, escorted cars.
There is nothing clear about this business. There are no sanctions from Colombia’s bank-oversight agency; there are no results from the preliminary investigations that the Prosecutor-General’s office began. The business is so prosperous, that in a zone where the narco-economy led the parade for years, it is easy to imagine that something strange is behind this surprising way of getting many out of poverty.
But this matters to very few. In the region, people are so content with DMG that any politician who wants to campaign and win elections in Putumayo would do well not to get involved. “A legislator asked in public about the origin of this money and called for an investigation, and the next day he had thousands of opponents in the department. The people will not allow this subsistence source to be taken from them,” commented a departmental government official.
At least two people were killed in riots in November when the people who ran the local DMG offices started shutting their doors and disappearing with cash. Mr. Guzman faces charges including money-laundering and illicit enrichment. He denies the allegations. Even after he fled, was arrested and returned to Colombia, his scheme continued, taking on a life of its own. DMG was still operating until the police closed its 60 branches across Colombia. Protests against the government by investors who insist that the company is legitimate and that the government had forced its collapse lasted for weeks. The Colombian authorities believe DMG was the most sophisticated pyramid scheme this country has ever seen.
Monday, March 16, 2009
Monday, March 9, 2009
Consumer Safety & Awareness Part 11
Bait & Switch: Pet Scams
Nothing is cuter than a cat. Nope, no dog, hamster, or fish comes close. And nothing is less adorable than a scam revolving around animals. Scambusters reports on five pet-related frauds.
If you have placed an ad in a local paper about your lost pet, and particularly if you offered a reward, you may get a call from someone claiming to have found your pet and asking for money to get it to you. There are many obvious ways to avoid this scam. Ask for a description of the animal, especially distinguishing marks not listed in your ad. Ask where it was found. Ask if there was a collar, especially if there wasn’t one. Tell the person to send you a picture by e-mail. Inform them that you will pay cash on delivery only.
Occasionally the caller threatens to harm your pet to put the pressure on so you'll pay up. In such cases ask for a callback number as you have to arrange for the money. Then notify the police. Threatening an animal for cash is embezzlement as well as violates the state’s cruelty to animal laws.
In a variation, the caller claims to be a trucker who found your injured animal as he was driving through the area. The caller may offer to send the animal back with another trucker who is heading your way. Turn that offer down. Treat it the same way as already described.
If the caller claims that your pet needed vet care, which he has taken care of and paid for, but he needs you to wire him the money so he can pick your pet up, ask for the name of the vet so you can find out the condition of your animal. If he refuses then hang up. Never pay in advance and never give out your name and address. If the call is legitimate, meet the person at the vet’s, even if it is out of state.
In a more complicated scam, your ad prompts a call from someone who claims to have found an animal that might be yours. In the process of exchanging descriptions, the caller will say that he's found a different animal, not yours. He'll apologize for your loss, and for taking your time. This is a set-up -- in a short time, he uses the information he's gotten about your pet to have a second person call and claim to have found your pet. Again, he'll try to collect any reward money in advance.
Your lost pet ad prompts a call from someone who precisely describes your pet, and wants to return it to claim the reward. In reality, your pet has been stolen by this person, who knew you would run an ad!
In a bizarre twist, scammers also respond to 'found' ads with the claim that you have found their pet. When you return the found pet, it may be sold to a research facility.
There are also advanced money scams relating to purchasing pets. The most common is where you buy a pet online, pay for it, and never get it. Another common one is when you are selling a pet (or any animal) and the person sends you a money order or check for an amount much larger than the agreed price. When you make contact the scammer tells you to cash the check and send him the difference. You’re stuck with a stolen or counterfeit check, and the bank wants its money back.
Bait and switch works on pets as well. You respond for an ad for an expensive breed of animal, pay for it, and get a mutt.
When getting an animal, be alert if the seller does not let you spend time with it prior to purchase or if the animal looks or acts unhealthy. If the seller focuses on the money and not the animal, then you should leave. In some cases the seller lets you see the animal, puts it back in his car, then takes your money and drives away.
The Humane Society’s web site has stories about such scammers.
“We all know the Internet can be a great place to buy anything from books to DVDs and rare gifts, but it's not where you should go to buy a new pet. In addition to disreputable dealers and puppy mills, Internet scammers have crept into the realm of online pet sales, stealing money from unsuspecting people who think their new dog or cat is on the way to his or her new home, when in fact there was never really an animal at all. The only party harmed in these scams is the person who is out hundreds or thousands of dollars. “
“In the real world of online pet sales, families often lose significant money when the pet they ordered falls ill soon after arrival. Such animals come from breeding stuck in factory-style operations, churning out babies to be sold off for a quick profit.”
The first rule whenever someone thinks of buying a pet is to visit where that animal was born and see how the parents are living. That cute puppy in the photo on the legitimate-looking website is almost too cute to be real. Often, he isn't.
One scam promises you a free puppy—as long as you pay the shipping. Once the scammers get your "shipping" costs, the scammer says your puppy is stuck at the airport due to customs complications, and you are asked to send more money.
Finally, the scammer (and the puppy who never existed in the first place) disappears. In many cases, victims think their dog is at the airport waiting for them after they've sent two or three money orders.
One woman recently contacted the Humane Society for help in saving a puppy that didn't exist. She believed she was adopting the puppy from a person she had met on the Internet who was stationed abroad. After taking some money from the woman for "shipping" costs, the scammer requested more money to help transport the dog from a European airport, where she said the dog was being held because of problems with the crate. After receiving e-mails that appeared to be from airport officials, the woman was convinced that "her" puppy was really at the airport and in need of her help. But it was all a hoax.
One e-mail scam tells the story of a woman whose mother unexpectedly died, leaving behind "adorable bulldog puppies" who—along with their parents—are in need of a home because the daughter and her husband moved to an apartment where pets are not allowed. Respondents are duped out of "shipping" or "adoption" fees for these non-existent puppies.
In other cases, the seller claims to represent an animal shelter or a Good Samaritan, offering the breeds for "adoption." In these cases, it's important to remember that reputable shelters do not place puppies by sending out mass e-mails and then shipping animals to people.
Internet scammers can deceive would-be buyers by using readily available online photos or by using stolen photos of other people's pets to represent the non-existent animal. They will often copy the claims of legitimate rescue groups and attempt to sound reputable by saying that they will only adopt the pet to someone who has a fenced yard, for example. They will also copy the text from breeder ads and claim to have registration certificates, vet records and health guarantees.
For more information about pet scams, visit TerrificPets.com/Scams where they actually list e-mail sent from people who have been the target of scam attempts.
Nothing is cuter than a cat. Nope, no dog, hamster, or fish comes close. And nothing is less adorable than a scam revolving around animals. Scambusters reports on five pet-related frauds.
If you have placed an ad in a local paper about your lost pet, and particularly if you offered a reward, you may get a call from someone claiming to have found your pet and asking for money to get it to you. There are many obvious ways to avoid this scam. Ask for a description of the animal, especially distinguishing marks not listed in your ad. Ask where it was found. Ask if there was a collar, especially if there wasn’t one. Tell the person to send you a picture by e-mail. Inform them that you will pay cash on delivery only.
Occasionally the caller threatens to harm your pet to put the pressure on so you'll pay up. In such cases ask for a callback number as you have to arrange for the money. Then notify the police. Threatening an animal for cash is embezzlement as well as violates the state’s cruelty to animal laws.
In a variation, the caller claims to be a trucker who found your injured animal as he was driving through the area. The caller may offer to send the animal back with another trucker who is heading your way. Turn that offer down. Treat it the same way as already described.
If the caller claims that your pet needed vet care, which he has taken care of and paid for, but he needs you to wire him the money so he can pick your pet up, ask for the name of the vet so you can find out the condition of your animal. If he refuses then hang up. Never pay in advance and never give out your name and address. If the call is legitimate, meet the person at the vet’s, even if it is out of state.
In a more complicated scam, your ad prompts a call from someone who claims to have found an animal that might be yours. In the process of exchanging descriptions, the caller will say that he's found a different animal, not yours. He'll apologize for your loss, and for taking your time. This is a set-up -- in a short time, he uses the information he's gotten about your pet to have a second person call and claim to have found your pet. Again, he'll try to collect any reward money in advance.
Your lost pet ad prompts a call from someone who precisely describes your pet, and wants to return it to claim the reward. In reality, your pet has been stolen by this person, who knew you would run an ad!
In a bizarre twist, scammers also respond to 'found' ads with the claim that you have found their pet. When you return the found pet, it may be sold to a research facility.
There are also advanced money scams relating to purchasing pets. The most common is where you buy a pet online, pay for it, and never get it. Another common one is when you are selling a pet (or any animal) and the person sends you a money order or check for an amount much larger than the agreed price. When you make contact the scammer tells you to cash the check and send him the difference. You’re stuck with a stolen or counterfeit check, and the bank wants its money back.
Bait and switch works on pets as well. You respond for an ad for an expensive breed of animal, pay for it, and get a mutt.
When getting an animal, be alert if the seller does not let you spend time with it prior to purchase or if the animal looks or acts unhealthy. If the seller focuses on the money and not the animal, then you should leave. In some cases the seller lets you see the animal, puts it back in his car, then takes your money and drives away.
The Humane Society’s web site has stories about such scammers.
“We all know the Internet can be a great place to buy anything from books to DVDs and rare gifts, but it's not where you should go to buy a new pet. In addition to disreputable dealers and puppy mills, Internet scammers have crept into the realm of online pet sales, stealing money from unsuspecting people who think their new dog or cat is on the way to his or her new home, when in fact there was never really an animal at all. The only party harmed in these scams is the person who is out hundreds or thousands of dollars. “
“In the real world of online pet sales, families often lose significant money when the pet they ordered falls ill soon after arrival. Such animals come from breeding stuck in factory-style operations, churning out babies to be sold off for a quick profit.”
The first rule whenever someone thinks of buying a pet is to visit where that animal was born and see how the parents are living. That cute puppy in the photo on the legitimate-looking website is almost too cute to be real. Often, he isn't.
One scam promises you a free puppy—as long as you pay the shipping. Once the scammers get your "shipping" costs, the scammer says your puppy is stuck at the airport due to customs complications, and you are asked to send more money.
Finally, the scammer (and the puppy who never existed in the first place) disappears. In many cases, victims think their dog is at the airport waiting for them after they've sent two or three money orders.
One woman recently contacted the Humane Society for help in saving a puppy that didn't exist. She believed she was adopting the puppy from a person she had met on the Internet who was stationed abroad. After taking some money from the woman for "shipping" costs, the scammer requested more money to help transport the dog from a European airport, where she said the dog was being held because of problems with the crate. After receiving e-mails that appeared to be from airport officials, the woman was convinced that "her" puppy was really at the airport and in need of her help. But it was all a hoax.
One e-mail scam tells the story of a woman whose mother unexpectedly died, leaving behind "adorable bulldog puppies" who—along with their parents—are in need of a home because the daughter and her husband moved to an apartment where pets are not allowed. Respondents are duped out of "shipping" or "adoption" fees for these non-existent puppies.
In other cases, the seller claims to represent an animal shelter or a Good Samaritan, offering the breeds for "adoption." In these cases, it's important to remember that reputable shelters do not place puppies by sending out mass e-mails and then shipping animals to people.
Internet scammers can deceive would-be buyers by using readily available online photos or by using stolen photos of other people's pets to represent the non-existent animal. They will often copy the claims of legitimate rescue groups and attempt to sound reputable by saying that they will only adopt the pet to someone who has a fenced yard, for example. They will also copy the text from breeder ads and claim to have registration certificates, vet records and health guarantees.
For more information about pet scams, visit TerrificPets.com/Scams where they actually list e-mail sent from people who have been the target of scam attempts.
Monday, March 2, 2009
Consumer Safety & Awareness Part 10
Bait & Switch: Financial and Service Scams
How would you react if a store keeper took your five-dollar bill and gave you a single in exchange? Some financial institutions use bait and switch to increase their profits, and, based on their reactions and refusal to admit there is anything wrong with their practices, they simply do not care.
Every time a company attempts to sell an annuity, they are pulling a scam. Annuities have the worst rate of return of any investment, and by telling you otherwise, in fact by assuring you that it’s the best investment you can make, the salesperson as well as the company is lying to you. By not offering an investment that has a higher rate of return, they are using a variation of bait and switch.
USA Today offers this advertisement as an example: "Come learn from the IRA Technician" at a seminar that more than 10,000 seniors have attended. Top sirloin steak will be served — along with tips on "how to guarantee your IRA will never run out, regardless of market fluctuations." The seminar then attempts to sell you an annuity. Since it takes forever for annuities to pay off, those over 50 should never invest in them.
When I was teaching, I was offered annuities almost every year. Many of my fellow teachers actually invested. Today, partly because I refused to invest in them, I have more money than they do.
An annuity is an investment that is tax deferred. You put in an amount, usually it’s taken out of your pay check and any interest you earn is not taxed until you cash it out, usually when you retire. Annuities are poorly regulated, and the companies are not required to disclose everything to you. They actually produce the lowest return of all legal investments. Many of them not only have large, occasionally hidden fees and commissions, but also take a percentage of your earnings out for maintenance or other silly excuses. Even Fidelity Investments, one of the most trustworthy names in the industry, was cited for annuity fraud.
It is highly recommended, based on more than 30 years of investigation by lawyers and consumer advocates, that you never put any money into an annuity and if you have money there you should consider withdrawal as soon as you can, even if it creates a penalty. A typical municipal bond fund, which is mostly tax-free and has consistently returned over 3%, occasionally up to 5%, produces as much as five times the return of an annuity.
The following information is from infofaq.com: “Variable annuities cost too much. Because annuities are primarily insurance products, their fees typically dwarf those charged by mutual funds. This is simple to understand when you realize there are two players involved instead of one.....the insurance company and the mutual fund company. According to Morningstar, the average variable annuity passes along expenses of 2.2 percent of the assets per year. This percentage probably won't mean much to you unless you realize how such a large fee can drain the momentum out of a portfolio. Let’s suppose, for example, that you invested $3,000 a year in a typical variable annuity that generates a yearly and unbelievably large 8 percent return before expenses. At the end of a 25-year period, your annuity would have grown to $168,000. If you had put that money into tax-efficient index mutual funds, charging between a low of 0.20 percent and a high of .50% in yearly expenses, the index fund would be worth $230,000. That's a difference of $69,000.”
Salesmen love to boast that you won't pay taxes on the money that's growing inside an annuity, because it’s "tax deferred". That's true, but it’s only half the story. You'll owe ordinary income taxes on every dollar of annuity withdrawals. This might not seem so bad until you appreciate what would happen if you had invested the same money in stocks or mutual funds in a plain old taxable account. These withdrawals would be taxed at long-term capital gains rates, which is only 15%. So lets say you're in a 35% ordinary income tax bracket and you've got a variable annuity. You'd pay $350 in taxes for every $1,000 you pull out. In contrast, if you'd kept this money in a taxable account, you'd pay no more than $150 for every $1,000 withdrawal. Extending this a bit, an investor cashing out a $100,000 annuity would pay $35,000 in taxes vs. $15,000 in a taxable account.
“So it is likely that investors buying variable annuities will actually end up paying more in taxes and having less after-tax wealth at retirement. In fact, the tax deferral feature of annuities actually harms investors who hold mostly equities in their accounts. If these investors are not told that they are being tax-disadvantaged by this tax deferral feature, then their brokers are making material misrepresentations and omissions.” 401-K accounts also have the same tax problem.
“Further, the tax disadvantage won't die when you do. It can hurt your heirs. That's because your beneficiaries will be saddled with paying capital-gains tax on any profit your annuity generated. If your original $50,000 annuity grew to $75,000, your heirs would owe tax on the $25,000 profit. In contrast, if you had placed your money in taxable mutual funds, because of the step-up in basis, your kids would get that $25,000 tax free.”
Earlier I mentioned that many of my fellow teachers have fallen for annuity plans. Teachers do not have access to 401-K plans for retirement. The only similar thing that is available to them is the 403-B. This is one of the worst investment and retirement options ever conceived. Howard Clark, a scam blogger and radio talk host, states “In the worst cases, teacher’s unions are handling the retirement plans and are taking kickbacks for putting teachers in a certain annuity. In New York, for example, the New York State United Teachers union gets a $3 million kickback to put teachers in these plans. If you’re a teacher, you need to know about this and take action. You can transfer your money tax free to two low-cost companies. The companies with the lowest costs are TIAA-Cref and Vanguard. Both are much better choices than any kind of annuity your union is pushing on you.”
So how do you know the best way to invest your money? You hire an investment counselor or you respond to one of the many ads for investment services. You might as well give your money to me right now. I’ll spend it on a few cups of coffee that we can share and you’ll have gotten a better return.
Cox Broadcasting recently had a show about investment counseling. Their conclusion was, “One of the greatest danger points is in mid-career, when you find yourself with a great deal of money in a 401K. At that time you're at the greatest risk, because that's when you're most likely to end up hiring a commissioned salesperson. Is that a problem in itself? No. There are plenty of situations when paying a commission is just fine. But in the investment world, there can be inherent conflict of interest with commissions. There are plenty of investment products that may not be the best choice for you, but you may be sold on them by the person you hire simply because the commissions are humongous. Variable and Index Annuities are referred to as 'sold', not 'bought', since people don't buy these on their own -- they are convinced to do so. Salespeople use code words such as Retirement Secured Account and other phony phrases to keep from tipping you off that you're being sold an annuity. Sometimes a Life, or Immediate Annuity makes sense, but the commissions are so low you won't hear much about them.”
“You also need to stay away from "fee-based planners." These salespeople start with a fixed fee, but the commissions on products they may sell you defray those initial costs, which again, may not be in your best interest.”
Financial scams are not limited to annuities and the sale of high-commission investments. In fact, there are so many of them that it would be impossible to list all even in a 1,000-page book.
Credit cards use bait and switch. They offer you initially low rates that zoom upward quite rapidly. Debit cards have hidden fees and, with interest charged from the moment of use, they are among the worst ways you can shop.
Mortgages come in so many flavors that it’s often hard to know if you have been switched from the one you wanted. In 2007, a Seattle mortgage company used a unique scam. According to the Seattle Post-Intelligencer:
“While Linden Loans LLC advertised residential home loans at "1 percent, with no points and no fees," the state Department of Financial Institutions said it found that "not one borrower actually received those terms in 2006." The department is looking into the company's 2007 practices.”
"The 1 percent rate touted by Linden lasts only a matter of months, and requires borrowers to accept predatory loan terms that would greatly increase costs to borrowers," Deb Bortner, the department's director of consumer services, said in a statement. "Consumers have to be careful. Low rate, low-cost mortgage loans may be available, but they often result in borrowers paying more than they should."
The Los Angeles Times offers this hoax from 2008: “Federal authorities in Brooklyn today indicted two former Credit Suisse brokers, alleging that they tricked large corporations into buying more than $1 billion of so-called auction-rate securities tied to mortgage debt in recent years. The companies had hired Credit Suisse to invest their short-term cash reserves in auction-rate debt backed by federally insured student loans, according to the indictment. But the brokers instead often placed clients in auction-rate issues backed by subprime home loans and other mortgage-related debt known as collateralized debt obligations -- because those issues paid them "significantly higher" commissions, the government says.”
BusinessNet has this example: “According to an Oct. 29, 2002 securities fraud action filed by the SEC in U.S. District Court in Oklahoma, Southmark has defrauded at least 400 investors, most of them elderly, since 1996 with a "bait and switch" gimmick using advertisements for high-yielding certificates of deposit. Customers seeking the safety of CDs would inquire, the suit says, then Southmark agents would aggressively pitch to them "a purportedly personalized managed mutual fund investment program." The agents described the program as "as safe or safer" than CDs. But principal invested in mutual funds may depreciate, unlike CDs which guarantee a set return.”
“Also investors were sold Class "B" mutual fund shares that carry deferred sales charges (loads) and higher internal expenses than Class "A" shares. One customer, a retired commercial airline pilot, invested his $2.1 million retirement savings with Southmark and quickly incurred more than $84,000 in commission charges and fees, according to court records.”
Just because the institution has a known name, and a good reputation, does not mean that individual salesmen will not attempt to defraud their customers. Enter every financial transaction with your eyes opened.
How would you react if a store keeper took your five-dollar bill and gave you a single in exchange? Some financial institutions use bait and switch to increase their profits, and, based on their reactions and refusal to admit there is anything wrong with their practices, they simply do not care.
Every time a company attempts to sell an annuity, they are pulling a scam. Annuities have the worst rate of return of any investment, and by telling you otherwise, in fact by assuring you that it’s the best investment you can make, the salesperson as well as the company is lying to you. By not offering an investment that has a higher rate of return, they are using a variation of bait and switch.
USA Today offers this advertisement as an example: "Come learn from the IRA Technician" at a seminar that more than 10,000 seniors have attended. Top sirloin steak will be served — along with tips on "how to guarantee your IRA will never run out, regardless of market fluctuations." The seminar then attempts to sell you an annuity. Since it takes forever for annuities to pay off, those over 50 should never invest in them.
When I was teaching, I was offered annuities almost every year. Many of my fellow teachers actually invested. Today, partly because I refused to invest in them, I have more money than they do.
An annuity is an investment that is tax deferred. You put in an amount, usually it’s taken out of your pay check and any interest you earn is not taxed until you cash it out, usually when you retire. Annuities are poorly regulated, and the companies are not required to disclose everything to you. They actually produce the lowest return of all legal investments. Many of them not only have large, occasionally hidden fees and commissions, but also take a percentage of your earnings out for maintenance or other silly excuses. Even Fidelity Investments, one of the most trustworthy names in the industry, was cited for annuity fraud.
It is highly recommended, based on more than 30 years of investigation by lawyers and consumer advocates, that you never put any money into an annuity and if you have money there you should consider withdrawal as soon as you can, even if it creates a penalty. A typical municipal bond fund, which is mostly tax-free and has consistently returned over 3%, occasionally up to 5%, produces as much as five times the return of an annuity.
The following information is from infofaq.com: “Variable annuities cost too much. Because annuities are primarily insurance products, their fees typically dwarf those charged by mutual funds. This is simple to understand when you realize there are two players involved instead of one.....the insurance company and the mutual fund company. According to Morningstar, the average variable annuity passes along expenses of 2.2 percent of the assets per year. This percentage probably won't mean much to you unless you realize how such a large fee can drain the momentum out of a portfolio. Let’s suppose, for example, that you invested $3,000 a year in a typical variable annuity that generates a yearly and unbelievably large 8 percent return before expenses. At the end of a 25-year period, your annuity would have grown to $168,000. If you had put that money into tax-efficient index mutual funds, charging between a low of 0.20 percent and a high of .50% in yearly expenses, the index fund would be worth $230,000. That's a difference of $69,000.”
Salesmen love to boast that you won't pay taxes on the money that's growing inside an annuity, because it’s "tax deferred". That's true, but it’s only half the story. You'll owe ordinary income taxes on every dollar of annuity withdrawals. This might not seem so bad until you appreciate what would happen if you had invested the same money in stocks or mutual funds in a plain old taxable account. These withdrawals would be taxed at long-term capital gains rates, which is only 15%. So lets say you're in a 35% ordinary income tax bracket and you've got a variable annuity. You'd pay $350 in taxes for every $1,000 you pull out. In contrast, if you'd kept this money in a taxable account, you'd pay no more than $150 for every $1,000 withdrawal. Extending this a bit, an investor cashing out a $100,000 annuity would pay $35,000 in taxes vs. $15,000 in a taxable account.
“So it is likely that investors buying variable annuities will actually end up paying more in taxes and having less after-tax wealth at retirement. In fact, the tax deferral feature of annuities actually harms investors who hold mostly equities in their accounts. If these investors are not told that they are being tax-disadvantaged by this tax deferral feature, then their brokers are making material misrepresentations and omissions.” 401-K accounts also have the same tax problem.
“Further, the tax disadvantage won't die when you do. It can hurt your heirs. That's because your beneficiaries will be saddled with paying capital-gains tax on any profit your annuity generated. If your original $50,000 annuity grew to $75,000, your heirs would owe tax on the $25,000 profit. In contrast, if you had placed your money in taxable mutual funds, because of the step-up in basis, your kids would get that $25,000 tax free.”
Earlier I mentioned that many of my fellow teachers have fallen for annuity plans. Teachers do not have access to 401-K plans for retirement. The only similar thing that is available to them is the 403-B. This is one of the worst investment and retirement options ever conceived. Howard Clark, a scam blogger and radio talk host, states “In the worst cases, teacher’s unions are handling the retirement plans and are taking kickbacks for putting teachers in a certain annuity. In New York, for example, the New York State United Teachers union gets a $3 million kickback to put teachers in these plans. If you’re a teacher, you need to know about this and take action. You can transfer your money tax free to two low-cost companies. The companies with the lowest costs are TIAA-Cref and Vanguard. Both are much better choices than any kind of annuity your union is pushing on you.”
So how do you know the best way to invest your money? You hire an investment counselor or you respond to one of the many ads for investment services. You might as well give your money to me right now. I’ll spend it on a few cups of coffee that we can share and you’ll have gotten a better return.
Cox Broadcasting recently had a show about investment counseling. Their conclusion was, “One of the greatest danger points is in mid-career, when you find yourself with a great deal of money in a 401K. At that time you're at the greatest risk, because that's when you're most likely to end up hiring a commissioned salesperson. Is that a problem in itself? No. There are plenty of situations when paying a commission is just fine. But in the investment world, there can be inherent conflict of interest with commissions. There are plenty of investment products that may not be the best choice for you, but you may be sold on them by the person you hire simply because the commissions are humongous. Variable and Index Annuities are referred to as 'sold', not 'bought', since people don't buy these on their own -- they are convinced to do so. Salespeople use code words such as Retirement Secured Account and other phony phrases to keep from tipping you off that you're being sold an annuity. Sometimes a Life, or Immediate Annuity makes sense, but the commissions are so low you won't hear much about them.”
“You also need to stay away from "fee-based planners." These salespeople start with a fixed fee, but the commissions on products they may sell you defray those initial costs, which again, may not be in your best interest.”
Financial scams are not limited to annuities and the sale of high-commission investments. In fact, there are so many of them that it would be impossible to list all even in a 1,000-page book.
Credit cards use bait and switch. They offer you initially low rates that zoom upward quite rapidly. Debit cards have hidden fees and, with interest charged from the moment of use, they are among the worst ways you can shop.
Mortgages come in so many flavors that it’s often hard to know if you have been switched from the one you wanted. In 2007, a Seattle mortgage company used a unique scam. According to the Seattle Post-Intelligencer:
“While Linden Loans LLC advertised residential home loans at "1 percent, with no points and no fees," the state Department of Financial Institutions said it found that "not one borrower actually received those terms in 2006." The department is looking into the company's 2007 practices.”
"The 1 percent rate touted by Linden lasts only a matter of months, and requires borrowers to accept predatory loan terms that would greatly increase costs to borrowers," Deb Bortner, the department's director of consumer services, said in a statement. "Consumers have to be careful. Low rate, low-cost mortgage loans may be available, but they often result in borrowers paying more than they should."
The Los Angeles Times offers this hoax from 2008: “Federal authorities in Brooklyn today indicted two former Credit Suisse brokers, alleging that they tricked large corporations into buying more than $1 billion of so-called auction-rate securities tied to mortgage debt in recent years. The companies had hired Credit Suisse to invest their short-term cash reserves in auction-rate debt backed by federally insured student loans, according to the indictment. But the brokers instead often placed clients in auction-rate issues backed by subprime home loans and other mortgage-related debt known as collateralized debt obligations -- because those issues paid them "significantly higher" commissions, the government says.”
BusinessNet has this example: “According to an Oct. 29, 2002 securities fraud action filed by the SEC in U.S. District Court in Oklahoma, Southmark has defrauded at least 400 investors, most of them elderly, since 1996 with a "bait and switch" gimmick using advertisements for high-yielding certificates of deposit. Customers seeking the safety of CDs would inquire, the suit says, then Southmark agents would aggressively pitch to them "a purportedly personalized managed mutual fund investment program." The agents described the program as "as safe or safer" than CDs. But principal invested in mutual funds may depreciate, unlike CDs which guarantee a set return.”
“Also investors were sold Class "B" mutual fund shares that carry deferred sales charges (loads) and higher internal expenses than Class "A" shares. One customer, a retired commercial airline pilot, invested his $2.1 million retirement savings with Southmark and quickly incurred more than $84,000 in commission charges and fees, according to court records.”
Just because the institution has a known name, and a good reputation, does not mean that individual salesmen will not attempt to defraud their customers. Enter every financial transaction with your eyes opened.
Monday, February 23, 2009
Consumer Safety & Awareness Part 9
Bait & Switch: Hospitality Industry
Be careful whom you give your business card to. Several business people have reported this situation: You go out to eat at a fine restaurant, probably not too far from your place of business. Someone enters soon after you and takes a seat He orders a meal and, upon leaving, stops off to say something to you like, “Nice to see you,” or “That looks good, I think I’ll order it next time.” He smiles and waves, then disappears from your life. When you go to pay your bill, his charges have been added to yours. He presented your business card and told the cashier that you said you’d pay.
All hospitality businesses are subject to this scam. You order tickets, get a hotel room, have a meal, or book a flight. When you get your credit card bill the charge is twice or more than what you expected. The company you dealt with quoted you one price and charged you another. Be sure to see the price in writing before agreeing to any offer, and keep the written receipt.
Travel Industry wire reports that online booking companies use this ploy frequently. “I called Expedia and a very polite, helpful agent apologized for the problem and found my $400 fare,” says Daniel, a microchip designer from Palo Alto, California. “She tried to book it for me - and then informed me that the fare had changed to $900 because fares can change in seconds as tickets are purchased.''
MSNBC followed through on this, speaking to an Expedia spokesperson. “While uncommon, the the two-system format we use will rarely return disparate fares,” says Expedia spokeswoman Katie Deines. “It speaks to the highly dynamic nature of pricing and availability. Expedia works throughout the booking process to verify pricing and availability so we are showing customers the latest information.” But travelers don’t care about the highly dynamic nature of pricing and availability. When they see a low fare one minute and a higher price the next, they call it a bait-and-switch. The price you’re quoted should be the price you pay. Every time.”
Global Travel News remarks, “The sad news is, travelers have to contend with this practice. Airlines and online travel agencies protect their claim by using words such as “for as low as” or “travel with rates as low as…” These are gray phrases wherein they only claim that they MIGHT give you the fare they advertise but they can’t really guarantee them.”
Hotels often offer low prices, but hide the bait-and-switch in the fine print. You may arrive at your destination to find that you have been placed in a small or poorly situated room (such as next to a busy restaurant or near the elevator), or one with a single bed. Services promised are often not applicable to your room, such as free breakfast or Internet service. The hotel has a room available that provides all you want, but it will be considerably more expensive.
MSNBC also reports this scam, “The California Department of Justice recently announced the arrest of Orange County travel agent Ralph Rendon. “The suspect allegedly ripped off dozens of senior citizens who wanted to travel to Cuba for religious and cultural purposes,” says the California Attorney General. The scam targeted Jewish and Greek Orthodox seniors trying to congregate with people of their own faith on the Caribbean island. After the 34 victims forked out five-figure deposits, Rendon announced their trips were being blocked by the Treasury Department and refused to refund their money. According to state investigators, he used the money to lease a brand new Mercedes, pay his rent and hire a divorce attorney.”
When you go to a fine hotel, you would think that the stores in its lobby offered only the finest merchandise. Experienced travelers have been finding knock-off items, such as watches, jewelry, handbags, luggage, electronics, and pirated CDs and DVDs, in many hotels in Europe and Asia. They are advertised as the real thing and offered at “discount” prices that are far more than the counterfeits usually sell for.
Hotels.com has been advertising that they will find exactly what you are looking for, exactly where you want it. There’s a good reason they include that in the ads. Many Caribbean Island hotels have been advertising that they are “on the beach,” or “in the center of the action,” when they are actually quite far away. Joe Yogerst of Forbes Traveler Magazine reports, “Unsuspecting travelers can get scammed into rooms only a few notches above a pig sty, places like the Hotel Carter in New York, which recently topped TripAdvisor’s list of the Top 10 Dirtiest Hotels in America. A manager at the Hotel Carter — who requested anonymity — said, “We know about the list. We’re doing OK. We’re still busy.” Then there’s the centrally located Park Hotel in London, which one TripAdvisor reviewer dubbed a “typhoid cubicle.””
Christopher Elliott another travel columnist, collects experiences reported by frequent travelers. The most common is charging for items that were not used. Many hotel rooms come with a self-service refrigerator and snack items, with outlandish prices, such as $5 for a Snicker’s Bar. If you simply accept the room as is, you may find that you are billed for items not used, although they truly are now missing from your room. Most likely they were never stocked to begin with. The bill for these items probably will not appear on your hotel charges but be placed directly onto your credit card. Your “use” of the hospitality items was not discovered until after you checked out. By the time you get the bill it’s too late to disprove it.
Be careful whom you give your business card to. Several business people have reported this situation: You go out to eat at a fine restaurant, probably not too far from your place of business. Someone enters soon after you and takes a seat He orders a meal and, upon leaving, stops off to say something to you like, “Nice to see you,” or “That looks good, I think I’ll order it next time.” He smiles and waves, then disappears from your life. When you go to pay your bill, his charges have been added to yours. He presented your business card and told the cashier that you said you’d pay.
All hospitality businesses are subject to this scam. You order tickets, get a hotel room, have a meal, or book a flight. When you get your credit card bill the charge is twice or more than what you expected. The company you dealt with quoted you one price and charged you another. Be sure to see the price in writing before agreeing to any offer, and keep the written receipt.
Travel Industry wire reports that online booking companies use this ploy frequently. “I called Expedia and a very polite, helpful agent apologized for the problem and found my $400 fare,” says Daniel, a microchip designer from Palo Alto, California. “She tried to book it for me - and then informed me that the fare had changed to $900 because fares can change in seconds as tickets are purchased.''
MSNBC followed through on this, speaking to an Expedia spokesperson. “While uncommon, the the two-system format we use will rarely return disparate fares,” says Expedia spokeswoman Katie Deines. “It speaks to the highly dynamic nature of pricing and availability. Expedia works throughout the booking process to verify pricing and availability so we are showing customers the latest information.” But travelers don’t care about the highly dynamic nature of pricing and availability. When they see a low fare one minute and a higher price the next, they call it a bait-and-switch. The price you’re quoted should be the price you pay. Every time.”
Global Travel News remarks, “The sad news is, travelers have to contend with this practice. Airlines and online travel agencies protect their claim by using words such as “for as low as” or “travel with rates as low as…” These are gray phrases wherein they only claim that they MIGHT give you the fare they advertise but they can’t really guarantee them.”
Hotels often offer low prices, but hide the bait-and-switch in the fine print. You may arrive at your destination to find that you have been placed in a small or poorly situated room (such as next to a busy restaurant or near the elevator), or one with a single bed. Services promised are often not applicable to your room, such as free breakfast or Internet service. The hotel has a room available that provides all you want, but it will be considerably more expensive.
MSNBC also reports this scam, “The California Department of Justice recently announced the arrest of Orange County travel agent Ralph Rendon. “The suspect allegedly ripped off dozens of senior citizens who wanted to travel to Cuba for religious and cultural purposes,” says the California Attorney General. The scam targeted Jewish and Greek Orthodox seniors trying to congregate with people of their own faith on the Caribbean island. After the 34 victims forked out five-figure deposits, Rendon announced their trips were being blocked by the Treasury Department and refused to refund their money. According to state investigators, he used the money to lease a brand new Mercedes, pay his rent and hire a divorce attorney.”
When you go to a fine hotel, you would think that the stores in its lobby offered only the finest merchandise. Experienced travelers have been finding knock-off items, such as watches, jewelry, handbags, luggage, electronics, and pirated CDs and DVDs, in many hotels in Europe and Asia. They are advertised as the real thing and offered at “discount” prices that are far more than the counterfeits usually sell for.
Hotels.com has been advertising that they will find exactly what you are looking for, exactly where you want it. There’s a good reason they include that in the ads. Many Caribbean Island hotels have been advertising that they are “on the beach,” or “in the center of the action,” when they are actually quite far away. Joe Yogerst of Forbes Traveler Magazine reports, “Unsuspecting travelers can get scammed into rooms only a few notches above a pig sty, places like the Hotel Carter in New York, which recently topped TripAdvisor’s list of the Top 10 Dirtiest Hotels in America. A manager at the Hotel Carter — who requested anonymity — said, “We know about the list. We’re doing OK. We’re still busy.” Then there’s the centrally located Park Hotel in London, which one TripAdvisor reviewer dubbed a “typhoid cubicle.””
Christopher Elliott another travel columnist, collects experiences reported by frequent travelers. The most common is charging for items that were not used. Many hotel rooms come with a self-service refrigerator and snack items, with outlandish prices, such as $5 for a Snicker’s Bar. If you simply accept the room as is, you may find that you are billed for items not used, although they truly are now missing from your room. Most likely they were never stocked to begin with. The bill for these items probably will not appear on your hotel charges but be placed directly onto your credit card. Your “use” of the hospitality items was not discovered until after you checked out. By the time you get the bill it’s too late to disprove it.
Monday, February 16, 2009
Consumer Safety & Awareness Part 8
Bait & Switch: Retail Stores and Services
We previously discussed how a mattress company was cited for bait and switch. All types of stores do it, and many get away with it. There are a number of variations used. Food stores like to advertise for their lower quality meats, and when you see how much fat, bone, and gristle there is, they hope you upgrade. Stores frequently display poorer items on the same shelf with the more profitable one.
Shelf placement is a trick all stores use. Products they want you to purchase are placed between waist and head level, with lower profit items on the bottom. Companies actually pay stores for ideal placement. Rather than doing this in cash, which may be illegal in some jurisdictions, they give the store discounts and extra products.
Electronic products are used in borderline bait and switch ploys. Stores may advertise for last year’s product and place it next to this year’s. Lower quality components are featured with the hopes that after you listen to the poor sound, you’ll switch up.
Digital camera scams abound. Many of them follow the same pattern and we have discovered eleven complaints against nine different companies using the same formula. Computer magazine Maximum PC explains a typical example: You order a specific camera by telephone, mail or Internet. Months later, you still haven't received it. You call the vendor, and you're given a song and dance about it being back-ordered because of X excuse, (but) would you like to buy the camera bundle with some accessories for $1,700? If you fall for the up-sell ... you'll notice that your package bundle includes (only) the battery and charger (which are normally included with the camera for MSRP). If you give up and cancel the order, you've wasted a ton of time, you don't have a camera, and the company has had your $600 for three months.
In November, 2008, the following action was taken:
Texas Attorney General Greg Abbott today charged two online digital camera and electronics retailers with conducting an unlawful bait-and-switch sales scheme. Today’s enforcement action seeks restitution for Texans who suffered financially because of the defendants’ unlawful conduct.
According to state investigators, Broadway Photo, L.L.C. and Starlight Camera & Video Inc., both of Brooklyn, N.Y., attempted to attract customers by offering the lowest retail prices on price-comparison Web sites. Once customers selected merchandise and made credit card purchases via the defendants’ Web sites, customers were notified that their orders had been processed. Despite the order-processing notice, customers were subsequently asked to call a specified telephone number to confirm their orders.
However, rather than use the calls to confirm customers orders, the defendants instead initiated aggressive, high-pressure sales pitches promoting over-priced accessories, including memory cards and batteries. The defendants’ telemarketers insisted these upgraded accessories were needed in order for the customers’ confirmed merchandise to function normally.
When customers refused these offers, the defendants told the customers the confirmed merchandise was substandard and lacked warranties. The defendants’ telemarketers encouraged customers to purchase different, more expensive products. If customers refused, the defendants canceled the orders, claiming the products were indefinitely back-ordered. When the defendants actually did ship orders, customers who intended to purchase new merchandise often received used or refurbished products.
In 2002, a federal court in Nevada issued an order against a BTV Industries e-mail scam that offered free video-game consoles but instead routed people to a pornography Web site charging $3.99 per minute. “According to the FTC, in the "bait-and-switch" scheme consumers received unsolicited spam e-mail messages claiming that the recipients had won a free Sony PlayStation 2 or other prize through a promotion supposedly sponsored by Yahoo. In fact, the e-mail messages directed consumers to an adult Internet site through a 900-number modem connection that charged them up to $3.99 per minute of use. Apparently, when consumers responded to the e-mail informing them that they had won the game system, they then were routed to a Web page that imitated an authentic Yahoo page. That page then instructed consumers to download a program that would purportedly permit them to connect to a "toll-free" Web site where they could enter their name and address to request a PlayStation. Yet, when consumers adhered to these instructions, they were connected to a pornographic site by way of a 900-number, where they then incurred per-minute charges.
In October 2008, a Hess Express gas station in West Roxbury, Massachusetts was “fined for displaying gas prices that weren’t what they were selling. The bait-and-switch occurred for a 15- to 25-minute period on Sept. 18 around 2 p.m. It is a clear violation of consumer rights, according to the city’s Inspectional Services Department. When prices go up, they must change the signs first and then the pumps, according to ISD. When a price change was done, the station had neglected to change the price on pumps.”
A newly discovered, but not too infrequent trick of automotive dealers, is to entice people in stating that they offer the top price on trade-ins. The salesperson refuses to give the trade-in price until a car is selected. Once that is done, a very low trade-in is offered, often raised slightly upon complaint. If the buyer backs down, the salesperson insists that he has to pay for the new car anyway since the paperwork was completed while they were negotiating. In some cases the used car had been brought to the service center for “evaluation,” and the dealership refused to give the car back, again saying the deal was completed.
This October, in Tallahassee, Florida, a Central Florida internet pharmacy company was sued by the attorney general, because “the company engaged in a “bait and switch” scheme, luring consumers into providing their credit card information by advertising prescription diet pills for significantly reduced prices. The company would then bill consumers for the prescription diet pills but would send herbal supplements instead of the purchased pills.
Professional Wrestler Magazine claims that a bait and switch was used to attract people to a wrestling event. “TNA really pumped up the audience with word of a "big announcement that will change the wrestling world." They even ran advertisements of the "big announcement" bearing Mick Foley's image on some of the biggest wrestling websites. And they saved the "big announcement" for its over-hyped "historic" show at the Hard Rock in Las Vegas.” The announcement was simply that he had brought stock in a company related to the wrestling industry.
Television news shows use the same ploy to get you to stay tuned for a major announcement after the commercial, assuming that you will watch the ad while waiting for the totally unimportant item. They build up the tension by having the news announcers state that it was coming up three or four times, and then not giving the information until the end of the show.
The Atlanta Journal Constitution reports complaints about carpet cleaning companies who put advertising coupons in your mailbox or in the glossy inserts in the newspaper with "specials" like $5.95 per room or whole house for $49.95. Once they arrive, they offer a more expensive service giving a variety of reasons. If you turn them down, they use inexpensive inert chemicals that can sometimes harm rugs, do a rapid job, take your money and leave.
We previously discussed how a mattress company was cited for bait and switch. All types of stores do it, and many get away with it. There are a number of variations used. Food stores like to advertise for their lower quality meats, and when you see how much fat, bone, and gristle there is, they hope you upgrade. Stores frequently display poorer items on the same shelf with the more profitable one.
Shelf placement is a trick all stores use. Products they want you to purchase are placed between waist and head level, with lower profit items on the bottom. Companies actually pay stores for ideal placement. Rather than doing this in cash, which may be illegal in some jurisdictions, they give the store discounts and extra products.
Electronic products are used in borderline bait and switch ploys. Stores may advertise for last year’s product and place it next to this year’s. Lower quality components are featured with the hopes that after you listen to the poor sound, you’ll switch up.
Digital camera scams abound. Many of them follow the same pattern and we have discovered eleven complaints against nine different companies using the same formula. Computer magazine Maximum PC explains a typical example: You order a specific camera by telephone, mail or Internet. Months later, you still haven't received it. You call the vendor, and you're given a song and dance about it being back-ordered because of X excuse, (but) would you like to buy the camera bundle with some accessories for $1,700? If you fall for the up-sell ... you'll notice that your package bundle includes (only) the battery and charger (which are normally included with the camera for MSRP). If you give up and cancel the order, you've wasted a ton of time, you don't have a camera, and the company has had your $600 for three months.
In November, 2008, the following action was taken:
Texas Attorney General Greg Abbott today charged two online digital camera and electronics retailers with conducting an unlawful bait-and-switch sales scheme. Today’s enforcement action seeks restitution for Texans who suffered financially because of the defendants’ unlawful conduct.
According to state investigators, Broadway Photo, L.L.C. and Starlight Camera & Video Inc., both of Brooklyn, N.Y., attempted to attract customers by offering the lowest retail prices on price-comparison Web sites. Once customers selected merchandise and made credit card purchases via the defendants’ Web sites, customers were notified that their orders had been processed. Despite the order-processing notice, customers were subsequently asked to call a specified telephone number to confirm their orders.
However, rather than use the calls to confirm customers orders, the defendants instead initiated aggressive, high-pressure sales pitches promoting over-priced accessories, including memory cards and batteries. The defendants’ telemarketers insisted these upgraded accessories were needed in order for the customers’ confirmed merchandise to function normally.
When customers refused these offers, the defendants told the customers the confirmed merchandise was substandard and lacked warranties. The defendants’ telemarketers encouraged customers to purchase different, more expensive products. If customers refused, the defendants canceled the orders, claiming the products were indefinitely back-ordered. When the defendants actually did ship orders, customers who intended to purchase new merchandise often received used or refurbished products.
In 2002, a federal court in Nevada issued an order against a BTV Industries e-mail scam that offered free video-game consoles but instead routed people to a pornography Web site charging $3.99 per minute. “According to the FTC, in the "bait-and-switch" scheme consumers received unsolicited spam e-mail messages claiming that the recipients had won a free Sony PlayStation 2 or other prize through a promotion supposedly sponsored by Yahoo. In fact, the e-mail messages directed consumers to an adult Internet site through a 900-number modem connection that charged them up to $3.99 per minute of use. Apparently, when consumers responded to the e-mail informing them that they had won the game system, they then were routed to a Web page that imitated an authentic Yahoo page. That page then instructed consumers to download a program that would purportedly permit them to connect to a "toll-free" Web site where they could enter their name and address to request a PlayStation. Yet, when consumers adhered to these instructions, they were connected to a pornographic site by way of a 900-number, where they then incurred per-minute charges.
In October 2008, a Hess Express gas station in West Roxbury, Massachusetts was “fined for displaying gas prices that weren’t what they were selling. The bait-and-switch occurred for a 15- to 25-minute period on Sept. 18 around 2 p.m. It is a clear violation of consumer rights, according to the city’s Inspectional Services Department. When prices go up, they must change the signs first and then the pumps, according to ISD. When a price change was done, the station had neglected to change the price on pumps.”
A newly discovered, but not too infrequent trick of automotive dealers, is to entice people in stating that they offer the top price on trade-ins. The salesperson refuses to give the trade-in price until a car is selected. Once that is done, a very low trade-in is offered, often raised slightly upon complaint. If the buyer backs down, the salesperson insists that he has to pay for the new car anyway since the paperwork was completed while they were negotiating. In some cases the used car had been brought to the service center for “evaluation,” and the dealership refused to give the car back, again saying the deal was completed.
This October, in Tallahassee, Florida, a Central Florida internet pharmacy company was sued by the attorney general, because “the company engaged in a “bait and switch” scheme, luring consumers into providing their credit card information by advertising prescription diet pills for significantly reduced prices. The company would then bill consumers for the prescription diet pills but would send herbal supplements instead of the purchased pills.
Professional Wrestler Magazine claims that a bait and switch was used to attract people to a wrestling event. “TNA really pumped up the audience with word of a "big announcement that will change the wrestling world." They even ran advertisements of the "big announcement" bearing Mick Foley's image on some of the biggest wrestling websites. And they saved the "big announcement" for its over-hyped "historic" show at the Hard Rock in Las Vegas.” The announcement was simply that he had brought stock in a company related to the wrestling industry.
Television news shows use the same ploy to get you to stay tuned for a major announcement after the commercial, assuming that you will watch the ad while waiting for the totally unimportant item. They build up the tension by having the news announcers state that it was coming up three or four times, and then not giving the information until the end of the show.
The Atlanta Journal Constitution reports complaints about carpet cleaning companies who put advertising coupons in your mailbox or in the glossy inserts in the newspaper with "specials" like $5.95 per room or whole house for $49.95. Once they arrive, they offer a more expensive service giving a variety of reasons. If you turn them down, they use inexpensive inert chemicals that can sometimes harm rugs, do a rapid job, take your money and leave.
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