Havre Hears Presenation on Financial Fraud

Havre Daily News
By Patrick Johnston

Montana Auditor Troy Downing was at North Central Senior Citizens Center Thursday to give a presentation on common forms of financial fraud, part of a 14-stop tour aiming to promote awareness, improve prevention and reduce the stigma around people who are victimized by fraudsters, especially senior citizens.

Downing said his role in Montana is to regulate the insurance and securities industries, and a big part of that is going after financial fraud, but that isn’t quite the purpose of this presentation.

“We don’t want to put more people in jail, we want to prevent these crimes from even happening,” he said.

He said there are many techniques fraudsters can use to get people to give them money, but there are common red flags that people can look for that will help keep them safe.

Downing said any offer or prize that says it’s only for one person is suspicious, as is any offer that claims it’s only available for a few hours.

He said any offer that seems too good to be true probably is, and anyone selling a get-rich-quick scenario is not to be trusted.

“For most people, the only sure way to success is 30 years of hard work, if it seems to good to be true, it almost certainly is,” he said.

One of the most common red flags, he said, is non-traditional payments, such as cryptocurrency, gift cards or moneygrams.

“There is no government agency, there’s no legitimate business, there’s no emergency that’s going to require you to suddenly buy a bunch of gift cards and read the serial numbers over the phone,” he said.

Cryptocurrency becoming common in fraud

Crypto is now the most common way fraudsters ask people to transfer money, he said, as these currencies are largely unregulated despite the efforts of the U.S. Securities and Exchange Commission.

Downing and members of his staff encouraged people to be especially careful when dealing with crypto as it is incredibly easy to get scammed and lose lots of money.

“People ask me all the time, ‘what crypto do you own?’ Zero, I own zero crypto,” he said.

But perhaps the biggest red flag, and the most insidious element of many of these scams, is compelled silence, he said.

He said sometimes it’s an offer that tells people not to talk about it to anyone or it becomes invalid, but other times it can be much more threatening.

A common one his office is seeing lately, Downing said, is when a fraudster will send someone a message on their phone saying they have downloaded child abuse material onto it, and they will tell the authorities about it unless they send them thousands of dollars through a crypto ATM.

He said a lot of people may not even know what a crypto ATM is, but almost every town they’ve been to on this tour has had one, including two in Havre.

And in talking to the clerks at these stores, he said, they only ever see a few people a week use them, usually older people putting in lots of money and he realized that these machines, by all appearances, are being used almost exclusively by victims of this scam.

He said his office is investigating these machines and it could be that the owners don’t know how they are being used, but this is becoming a serious issue

Sophisticated scams can fool almost anyone

Downing said there are a lot of scams like this that are much more sophisticated, to the point where they can reliably fool people no matter how smart they are.

He told one story of a woman in Anaconda who lost almost everything despite clearly being incredibly intelligent and lucid.

He said fraudsters who had gained her information on the dark web noticed that someone had made some fraudulent purchases, using her Amazon account, so they pretended to be Amazon and called to tell her about these fraudulent purchases giving her a number to call the SEC because they were concerned this fraud may be part of a larger pattern they are investigating.

Little did this woman know that the number she was calling was another fraudster who pretend to be from the SEC and told her that they believe her account had been broken into and was being used in a money laundering scheme, and then gave her another number to call that was supposed to be the U.S. Drug Enforcement Agency, a number that was for yet another fraudster.

But this one told her that the DEA believes not only that her account is being used in this scheme, but that she is in on it, and she may be on the hook for 20 years in prison if she doesn’t cooperate with the investigation and tell them about all of her activities, not leave Anaconda and not communicate with her family or other law enforcement.

And after spending weeks living in fear and cooperating with the fake DEA agent the fraudster told her that they were finishing up the investigation and it was now clear to them that she was not involved.

The fraudster then told her that the SEC can protect her remaining funds by putting it into a special account with them to keep it safe while the investigation continues.

In her elation and relief she transferred almost everything she had into what she thought was a secure account with the SEC only to later realize that this had all been a scam and she was left with almost nothing.

Downing said he tells this story for two reasons, one because it demonstrates that these fraudsters are willing to construct elaborate and convincing scams that can fool people through manipulation.

The second reason he tells this is to show that anyone can be manipulated and victims shouldn’t feel shame.

“People think, ‘How could that happen to me? How could I be so stupid? How could I let that happen?’ But I just told you about that woman in Anaconda, intelligent, lucid, smart. If they can pull the wool over her eyes, anybody can be a victim,” he said. “There is no reason to be embarrassed.”

Eliminating stigma of fraud

He said only a low single digit percentage of these frauds gets reported, in part because victims feel shame over having been fooled, and when they go unreported people lose all chance at recovery and organizations like his lose the chance to go after bad actors and gather information on these fraudsters.

He said he understands why people feel the way they do in the wake of these scams, but they really shouldn’t feel bad about themselves.

“It happens to the smartest of us,” he said.

Downing said people also don’t report these things because they believe there is no chance of getting their money back.

While it’s not always possible to recover all of the money they’ve lost, he said, there’s always a chance, and even if they don’t get all of it back they can sometimes get something.

He said the state has had Elder Justice Councils, multidisciplinary resource groups, to help keep elderly people informed and protected from fraud, but they didn’t have investigative or prosecutorial power, so his office put together a task force to give them teeth.

He said they work with agencies and organizations around the state to go after bad actors, and, while they can’t always get everyone’s money back, they have been successful at bringing a lot of fraudsters to justice.

Downing said the state also has a Securities Restitution Assistance Fund which can provide people with up to $50,000 if they are the victims of certain scams.

He said $50,000 may not cover everything a person has lost, but if someone isn’t sure if they can pay for food, that money can go a long way.

Downing implored people to get in touch with his office if they think they are being or have been scammed and they will do everything they can to help them.

“These are English speaking humans in Helena, they will answer the phone and they will listen,” he said.

Downing talks about some common scams

Downing and other members of his staff who spoke talked about specific scams that are common and how to spot them.

Downing said after years and years of interest rates near zero some people are starting to finally find accounts with four or five percent interest rates, which is great, but that has opened the door for fraudsters who claim to have accounts with interest rates of 10 or even 20 percent, which is never legitimate.

He also said there are people who will pose as brokers or investment specialists who will reach out to people and offer to invest their money, or even make a fake account to befriend someone online and carry on the relationship for months before mentioning that they are a “broker” and they could invest some money for them.

Sometimes the fraudster will invest small amounts for them and give them positive returns a few times, but eventually they ask for a large sum and disappear once they get it.

Drew Cziok, a lawyer who goes after these kinds of fraudsters for Downing’s office, spoke at the presentation and said these people will often reach out through social media or by text, which is a red flag.

Cziok said a lot of these people will spend months developing a relationship with someone before springing a trap on them, either by promising to invest money for them, or asking for financial assistance.

He said people should always be extremely careful when doing anything involving money online with someone they’ve never met.

He said a lot of people are looking for companionship online and there are fraudsters out there who will use that to manipulate people.

Downing said legitimate brokers and investment advisors are usually registered with the state or SEC, but there are exceptions to those rules, especially for crypto, and if people are talking to someone who is unregistered they should be extremely cautious.

Cziok also said there are, unfortunately, unscrupulous investors and brokers out there who are properly registered and people should always be cautious when investing money.

He said a lot of brokers are paid a commission on trades so they sometimes will make trades even when it’s not in their clients best interest, and if people are going to use these services they need to make sure they are getting statements from these brokers, reading them, and asking questions.

Cziok also talked about fraudsters who will call seniors pretending to be their grandchildren or a police officer who has their grandchild in custody at the border and they need to pay a fine or go to prison.

Another common scam they see, he said, are pyramid and ponzi schemes.

A pyramid scheme is when a company primarily makes money not through selling a product or service, but by recruiting more and more people to pay into the scheme.

They will tell the people they recruit to go out and recruit others, and the more they recruit the more money it will make, and while the company sells almost nothing they will make a lot of money from all of the entry fees from the people being recruited.

Cziok said there are multi-level marketing companies that are registered with the state that do sell actual products and services, and do also make money through recruitment, which is legal, but they don’t necessarily condone this business model and people should be extremely careful when getting involved with any of them.

Ponzi schemes, where investor money is shuffled between investors to give the appearance of returns without actually investing anything, is also still pretty common.

Dangers of ‘cognitive biases’

Another person who spoke was Investor Education and Public Outreach Coordinator Blair Stapleton who talked about common cognitive biases everyone has that they should be aware of when they are on the lookout for fraud and scams.

Stapleton said people, by their nature, don’t always truly consider worst-case scenarios and may look past things that would otherwise make them skeptical to avoid bad feelings.

“Ignorance is bliss, until it’s not,” she said.

She said there’s also a tendency by people to hear stories of people getting scammed and convince themselves that they can’t be manipulated, but this isn’t true and only makes it easier for people to be fooled.

She said these are natural human tendencies, but they can work against people and they should be aware of them, especially as they get older and their brains change.

She said people can always designate one or more Trusted Contact Persons, who banks and financial institutions can contact if they see strange activity and can’t get ahold of account holders directly.

She said these TCPs are not permanent and cannot make decisions or authorize transactions, but having them can be an important tool in catching fraud.

She also said people can designate Powers of Attorney who can make decisions and authorize things on their behalf if they need it.

Stapleton also encouraged people to list beneficiaries for any money or asset that isn’t transferred by will including retirement savings plans and trusts.

Banking against fraud

Independence Bank Vice President of Operations Joanna Skiff was also invited to speak at the presentation, and she said that bankers want to prevent this kind of fraud as well, and they have tools and resources to do that.

Skiff said she’s seen well meaning people get drawn into these scams, sometimes spending years thinking they’re helping a child in another country survive, and nothing is harder than sitting those people down and telling them that they are being lied to and their good will is being manipulated.

She said she knows that sometimes banks come off as nosey when they go after what they think is suspicious activity, but they are just trying to prevent people from losing their hard-earned money.

After the presentation, Downing said he’s been very pleased with the tour, and he saw a lot of people in the audience that night who had clearly encountered some of these scams and were recognizing the red flags as he talked about them, which is great.

He said he wants to introduce skepticism into these conversations about money and make sure people are informed, but also really wanted to emphasize the importance of getting rid of the stigma victims face.

He said he fears a lot of these scam are only going to get more sophisticated as artificial intelligence and voice replication software advance, and so much of people’s personal information gets collected through legal and illegal means.

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