05/27/2013 02:07 EDT | Updated 07/26/2013 05:12 EDT

Don't Be Fooled By Phishers, Fraudsters, and Scammers

In a recent court decision, a British judge sentenced three members of a phishing gang to heavy prison time after a British woman lost her entire life savings (US$1.6-million) through a phishing scam. Staying vigilant and asking questions about those "too good to be true" deals is critical.


"Every year, Americans lose about 40 billion dollars in telemarketing fraud and they lose another 100 billion dollars a year in fraud in general."

In his talk at the Committee for Skeptical Inquiry convention held in Nashville, Tennessee last October, Anthony Pratkanis had no problem getting his audience's attention. Pratkanis, a professor of psychology at the University of California in Santa Cruz, is a well-known expert on economic fraud crimes, marketing behaviour, and subliminal persuasion. Along with being the author of several books on fraud, including Weapons of Fraud: A Source Book For Fraud Fighters, he has made numerous television appearances warning the public about the various con games played on vulnerable adults, particularly the elderly.

The consequences of these schemes can be devastating. In a recent court decision, a British judge sentenced three members of a phishing gang to heavy prison time after a British woman lost her entire life savings (US$1.6-million) through a phishing scam. The woman's bank account was siphoned off using an elaborate system of "mules" to withdraw the money without the bank noticing. The gang members then spent the money in an elaborate shopping spree that left little for police to recover. Though the judge ordered the money to be repaid, there seems little likelihood of this ever happening. While the case is unusual for the amount of money stolen from one individual, frauds just like it are being carried out every day.

The con artists can interact with their intended target in any number of ways, whether through spam email, telemarketing, investment seminars, or television commercials. Some of the scams that Pratkanis mentioned in his talk include: charity frauds, investment scams (such as gas and oil development schemes), lottery frauds, etc.

One thing victims share is that they are often too afraid to come forward for fear of being seen as "too gullible." However, Pratkanis and his colleagues' research found that there were no other real pattern to the targets. "Victims come in all shapes and sizes," he said. "Some are active in their community and leaders whereas others fit more stereotypical notions. The only thing they have in common is they have money."

Among the things that can make older people more vulnerable is loss of a spouse. Often after a death, potential "saviours" come forward offering solutions that can lead to grieving seniors taking unsafe risks. Part of the danger again comes from what Pratkanis calls the "Disneyland influence," with scam artists using tactics familiar to social psychologists to gain a potential victim's trust.

Some of the most common strategies used by scam artists are:

  • Phantom fixation - the criminal provides a prize or reward where the chance to win is so attractive that victims often ignore their own good judgment
  • Social proof - if everyone agrees, it must be a good deal
  • Door in the face - asking a potential victim for a large commitment which, when rejected, is followed by a request for a smaller commitment more likely to be accepted
  • Authority - the person or company pitching to you is someone to be trusted
  • Scarcity - if you don't take this deal now, you'll lose out and never get another chance

Since many of these same strategies are also used by legitimate businesses to sell their products, seeing them in advertisements may not set off warning flags. Sweepstakes prizes are one example of a phantom fixation suggesting that purchasing magazines, etc. can make you eligible for winning a fabulous prize that never materializes. Making one purchase often leads to requests for more money to "increase the chances of winning" the big prize. The prospect of winning millions can be overwhelming for people with modest nest eggs.

Many older adults also feel they have few years remaining and can see the big prize as their "last chance" at becoming wealthy. Other examples of scarcity include presenting relatively low-cost items such as gold coins as "collector's items" which can only rise in value due to their relative scarcity (they don't).

Then there is authority. Scam artists usually present themselves as being, or representing, high-status figures or celebrities who command instant respect. One convicted con-man in an educational video described how he successfully called potential victims posing as bank presidents, branch managers, or FBI agents. Authority also plays a role in mail and internet scams with "official" stamps of government or corporate agencies to command respect. Use of celebrities is another example of authority to help promote scams.

Glossy advertisements can also provide anecdotes from other participants who supposedly took part in the scam and won big as a result. This can help relieve whatever fears the intended victim has ("If everyone agrees, it must be good").

Other familiar scam tactics include:

  • Reciprocity - providing a free gift to the potential victims which then makes them feel obligated to buy something
  • Similarity - the scam artist will pretend to share your values and experiences. People are more likely to be taken by someone with whom they can identify
  • Consistency - trapping the intended victims with their own words. If the proposed victims report a specific need, such as a good investment, the scam artist will promptly play on that by insisting that the scam in question meets the victims' needs.
  • Contrast - the scam artist compares the cost of the proposed scam against a similar item of much greater value to make it seem as if the victim is getting a great deal.

No scam artist will rely on only one tactic and the intended victim will usually be subjected to a barrage of different tactics to wear down resistance. During any direct contact, whether in person or on the phone, a good scam artist will essentially interview intended victims to learn their weak spots. The first sale is usually just a "foot in the door" which makes the victim more likely to make further purchases. And not just from one scam artist, either. Since scam artists often share customer lists, accepting one scam can lead to being subjected to numerous other scam artists since you have been identified as a "live one."

So how can fraud be prevented? Pratkanis and his colleagues have developed a "call centre" approach that has proven to be effective. Using "mooch lists" that police agencies have seized from known scam artists, names and telephone numbers of potential victims of fraud are collected. Volunteers from the National Telemarketing Victim Call Center (NTVCC) call these victims and warn them that they are potential targets for fraud. In operation since 2006, NTVCC maintains a "Reverse Boiler Room" for contacting potential victims. Fraud Fighters warn these potential victims of high-pressure telephone tactics and also provide referrals to local agencies.

As part of their anti-fraud initiative, FINRA, AARP and the National Crime Prevention Council have joined forces to improve investor education and combat the rising number of investment scams. Drawing on social psychological research into scam techniques, the Outsmarting Investment Fraud campaign combines moderated presentations, educational videos, and group exercises to increase consumer awareness. The campaign is designed to teach consumers to ask the right questions and to check the credentials of brokers selling the investments. Educational videos include interviews with victims, scam artists, and securities regulators as well as showing the right and wrong way to respond to high-pressure sales pitches.

While information seminars and online resources can be effective in teaching potential victims to be more cautious, curbing a multi-billion dollar industry will take time and effort. As new cases of people being cheated out of their life savings come to light, staying vigilant and asking more questions about those "too good to be true" deals is more critical than ever.

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