If you follow the financial and business news semi regularly, is it just me or does there seem to be more and more frauds, scams, than ever before? Whether on the business level, personal level, crypto, IT hacks, phone scams, phishing, etc, it is happening everywhere. Although in past eras 24/7 news and internet did not exist, which may have influenced our senses and perceptions on the number of scams going on. Nevertheless, it is an interesting topic to delve into, and to prevent ourselves from ending up in one of them. If you’re like me, chances are it may have already happened to you before, and boy does it feel rotten. Being angry at some person that you will never see in your life, or worse yet, angry at no one particular in anonymous scams. Getting hurt financially and emotionally, not a good situation to be in.
Looking at the data released by the US FTC, Federal Trade Commission, consumers reported losing almost $8.8 billion to fraud in 2022, which is 30 % more than in 2021. What’s interesting is that in 202 there were only 2.4 million fraud reports, compared to 2021 2.9 million fraud reports and $6.1 billion lost. Either that means less people are being scammed for greater amounts of money, or there are even more scams that are just not being reported, which means the amount lost could be even higher. And 2021 consumer fraud was 70% higher than 2020s ~$3.6 billion lost. Losses to investment scams went up from $1.8 billion to $3.8 billion from 2021 to 2022. And businesses were not spared either, with business loss resulting from scams increasing from 2020 at $196 million, to 2021 at $453 million, to 2022 $660 million. Scams come in the forms of online, email, social media, imposters in person, phone calls, texts. No one or any avenue is spared, and clearly, scams are working as the amount of money lost is increasing each year in all categories, by alarming rates. Let’s look at the reasons for scams, and examples from each of business, consumer, and investment scams.
Reasons for scams increasing
There are several reasons why scams are increasing. If the amount of money being scammed is going up, that would imply scammers are more likely to spend more time and tactics towards scamming in the future, given the success. As Charlie Munger would say, show me your incentives and I will show you your future. If scams never worked and the amount of money scammed was $0 per year, I’d have to imagine the number of attempted scams would go down quickly, given the lack of expected results. The data clearly shows that scams are now working better than ever before. The question is, why are people falling prey to scams easier than ever before? Or better yet, the deeper question, why are people even engaging these scams to begin with? What motivation is occurring on the other side, from the victim’s perspective? Note that I am never condoning, promoting, or encouraging scamming behavior. Since we looked at the psychology of the scammer, and the expectation of a reward being provided upon the scam, the scammer continues to be willing to scam, given the monetary reward. But the victims as such must also have an expectation or desire of an outcome in order to be participating as well. It is one of the deepest emotions to fulfill that leads to the victim being scammed: fear, greed, foolishness, impatience, lack of moral values, laziness via taking shortcuts, need for external validation through some kind of outsized success. An old saying goes, “fool me once, shame on you. Fool me twice, shame on me” It’s odd to see some people being repeatedly scammed, and what’s worse, through similar methods one after the next. I guess a fool and their money soon be parted.
Business scams
Business scams lines can be blurred from investment scams, as often, a business scam involves multiple stakeholders to get hurt, including big investors.
FTX, formerly led by Sam Bankman-Fried, or SBF, was a cryptocurrency exchange and crypto hedge fund (of sorts) until November 2022’s bankruptcy declaration. SBF was once touted as the world’s most philanthropic billionaire, and all this before the age of 30, through cryptocurrency arbitrage between exchanges across the world, notably Korea and the US. By illegally borrowing funds through his owned Alameda Research through his girlfriend at that firm, as well as using deposits and investor money, he wound up trading cryptocurrencies in a horrific bear market in 2022 that led to unsustainable losses and eventual bankruptcy. What’s even crazier is that when money was being raised for FTX initially, SBF was actually gaming on his other screen during VC meetings with the #1 VC firm in the world Sequoia Capital. Absolutely mind boggling that was the case, and now Sequoia is out the $214m they invested. Imagine if you were to be gaming with meetings with your manager, I wonder how that would go? Additionally, the money he took was also used to fund his very lavish lifestyle in the Bahamas. Even now, to deny any wrongdoing whatsoever seems absurd, in light of the evidence. Many have claimed that SBF is a sociopath, with baseless claims and a sense of delusional self grandiose. Stealing funds and using them for his own personal benefit for as long as he did is many times worse than the employee constantly stealing from the cashier. Now that SBF has become infamous, everyone is taking the time to throw dirt on him and taking verbal liberties wherever possible. But why was everyone so openly supporting him prior to the bankruptcy?
Theranos, then led by Elizabeth Holmes, was supposed to be the next big thing in healthcare startups, to be able to revolutionize blood tests. A Stanford admitted student who dropped out to fulfill this “mission”, what a strong background to start with. It also helps that people assigned the halo effect to her, automatically assuming everything she did was right just because she was attractive and well put together. With tons of venture money backing from Tim Draper, Rupert Murdoch, Oracle founder Larry Ellison, many reputable names on the board, and an FDA approval for fingerstick blood testing for Herpes, it would actually look foolish NOT to endorse her. I guess the saying the apple doesn’t fall far from the tree applies here, as her dad was an executive engaged in fraud at Enron. Warren Buffett has a rule that the people to look for have intelligence, energy, and integrity. Well, it seems integrity no longer matters to people just looking for a quick buck, as the evaluation of this quality did not even seem to happen anymore. With one big investor piling in after another, everyone would think the previous investors did due diligence, and based off name reputation alone, assume the best. Not doing any due diligence and just blindly trusting other investors, albeit successful investors, seems like a risky ordeal.
Frank, founded by Charlie Javice, was intended to aid prospective and current students in garnering additional student aid. A one stop application that would help students get aid where they might not otherwise have gotten, and taking some fees in the process. Sounds like an enticing business. After the first initial application, a student does nothing and receives extra money, and the company gets a share of that in profits. Coming from a wealthy family with a degree in finance at Wharton, and looking attractive, naturally this would garner attention. Even more so when being rated a Forbes top 30 under 30 person in 2019. They managed to be sold to JP Morgan in September 2021 for $175 million USD, with then apparently 4.25 million active users. JP Morgan’s intent of buying the company was for the user base to convert into new JP Morgan clients in the future. However, it was later discovered just a year later in 2022 that there were at most 300,000 real users, with nearly 4 million user accounts being fake accounts, which Charlie Javice had gone ahead and paid for. When JP Morgan sent out emails to the first batch of users, 70% of the emails bounced entirely, as the emails went to non existent accounts. What’s mind boggling here is that there were already real users at 300,000, quite the decent number. Why not just work a few more years, get market validation and then reach the 4.25 million users, and sell 3–7 years later for the $175 million? The business model already appeared to be working with that many active users. It seems the greed and impatience to get fast money now, combined with a disregard for morality led to this bad ending for all involved. The lawsuits for money afterwards always seem comical. Suing the founder and company when there is no money left post bankruptcy; but I guess, the lawyers do make out well.
Investment scams
Now there seem to be all kinds of investment scams, promising fast and easy money to accomplish the dream of lavish lifestyles and status. One interesting one that seems to be cropping up, which may not exactly fit the straight definition of a scam, is online courses from fake gurus claiming you could potentially make money if you just follow the course correctly. It seems to me that anytime easy money is offered on the table, it’s just other people making easy money off of you, but just through courses ending in a 7, e.g. $997. How many of them make more money off selling said courses, than they do in the actual “business” activity that they do, whether that be physical goods drop shipping, digital service drop shipping, YouTube automation, crypto day trading, ChatGPT automated publications, forex trading, you name it. I once associated with a guy who was involved in forex trading, and ended up quitting his job to do it from a course and early success. Fast forward several years later, and he ended up quitting it altogether and now cannot find a job in his field of study, given the lack of work experience, and is working part time as an administrative assistant. So that’s what happens when heeding the “wisdom” of the so-called gurus.
Other investment scams like various pyramid schemes and ponzi schemes disguised as “high quality business opportunities” that anyone can start in a matter of minutes, proposed to you by a stranger somewhere randomly. I once almost fell prey to such a recruitment, that occurred to me during a longer coffee shop working session. The person was also working said shop, and while taking a break, we ended up chatting with each other. The person was synonymous with the recruiter in the squid games. Personality being affable, charming, outgoing, talkative, sociable, dressed well, audacious, hard working, motivated, ambitious, intelligent squared away, natural leader. In retrospect, I still find the guy having many positive qualities and even now am not sure I would be able to tell any problems just from regular interactions. However, it was when I was invited to the seminar at someone’s house did, I realize the problem through the other recruiters and participants. The participants reeked of desperate greed bordering on sacrificing morals and one’s own soul to get any kind of gain. The other recruiters instantly reeked of fraud, boisterousness, bravado, aggressive sales tactics. Only from the other people’s lack of character and integrity was I able to tell that this whole charade was a scam. Some fraudsters are extremely clever and intelligent in the way they understand human nature and manipulate people to see a version of themselves that seems convincing. Wolves dressed in sheep’s clothing, as the bible would say.
Crypto scams are running about with the lack of regulatory clampdown, untraceable transactions and inability to undo transactions. That’s a way to scam anonymously and consequence free. Ranging from fake coin projects with rug pulls immediately upon introduction, to projects offering unrealistic returns, and scammers outright cheating coins from people through false buy and sell signals in small cryptos. Pump and dumps occurring in stocks targeted towards micro cap stocks where the very promoters of the company are being paid by the company to raise media coverage of said companies on various social media outlets.
Consumer scams
Email scams are happening more and more, with various attempts like phishing, romance, false tax bills, free gift cards, winning prizes for contests I don’t know about, leading to hacks, ransomware, malware. I recently was the subject of an attempted scam by an email that did not enter my junk email immediately and instead directly to my inbox:
Thankfully, I didn’t click anything, go to the address, the website, or send any bitcoins. The question I have is if an average looking guy’s private stuff could be sold for money, like this person could be implying. Otherwise, I will be disappointed by the scammer.
Phone scams now happen frequently too, with illicit calls targeting vulnerable populations. This works particularly well on the elderly, who lose an estimated 2–3x more on a scam than other age groups. I take the liberty to wasting the time of these people, so that they get through less people. I guess I’m doing my part to reduce the amount lost to consumer scams.
Conclusion
A decay of moral values and common sense, or perhaps, uncommon sense, is leading to scams working, more scam attempts happening, and thus a repeated vicious cycle continuing. I wonder how much better the average person’s life would get if they didn’t fall for this, and that money could be better spent to vacations, home upgrades, care for others, savings for children’s education.
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.