Financial Fraud Is Back - Stronger Than Madoff - Forbes Financial Fraud Is Back - Stronger Than Madoff - Forbes

Thursday, June 7, 2012

Financial Fraud Is Back - Stronger Than Madoff - Forbes

Financial Fraud Is Back - Stronger Than Madoff - Forbes

Financial fraud is on the rise. You’d think with the increased awareness due to publicity around Bernie Madoff’s $65 billion dollar Ponzi scheme that incidents of financial fraud would have gone down, but instead it has been quite the opposite.  According to the Federal Trade Commission’s (FTC) Consumer Sentinel Network Data Book, there has been a 62% increase in financial and other fraud claims in just three years, with over 1.5 million individual claims in 2011.  Some of it we have little control over, such as hackers accessing personal account information from financial institutions over the internet.  Areas we can control are the more personal ones where we are actually writing checks, although “affinity” scams and Ponzi schemes are more subtle and not as easily recognized.  With the passing of the JOBS Act of 2012, “crowd funding” opportunities also open the door for more fraud possibilities.

I am highly aware of financial fraud, not just because I am a financial planner, but because I live in a state participating in a wide scale anti-fraud awareness and education campaign. I live in Utah, a state besieged by financial fraud (approximately $2 billion dollars since 2010), especially “affinity fraud,” which targets closely knit religious groups. Utah only has a population of about 3 million people, so the fraud bill is around $700 per person.  At this level of fraud, the state of Utah loses about 1% of its Gross State Product each year—dollars that are sorely needed in today’s economy.

The victim’s lives are changed forever, but fraud also affects everyone.  A fraud victim may have to delay retirement if their nest egg disappears.  This means not one but two jobs are affected—the co-worker who might have gotten a promotion, and the young new hire who would have taken their place.  The effects of financial fraud can contribute to high unemployment as workers hang on to their jobs since they can’t retire.  It also may contribute to the $1 trillion in student debt as children of fraud victims take on additional student loans when college funds are wiped out. The housing market is affected when a home is foreclosed on and the bank takes a loss, which can cause neighborhood real estate values to decline.  Even the community takes a loss when less property tax is paid, which means fewer funds available for public schools.  There is also the unseen cost when fewer cars are purchased, fewer new homes are built, and fewer remodeling projects take place.  Whether it is direct or indirect, fraud’s effects are deep.

Here are three areas where financial fraud can occur, and how to protect against it:

Insure yourself against identity theft.  Identity theft may be a passive type of fraud where you aren’t actually writing a check to a scam artist, but you are vulnerable nonetheless.  Security can’t keep up with the proliferation of identity theft as hackers are constantly finding new ways to access your personal information.  In fact, McAfee Blogger Carlos Castillo writes about Trojan computer viruses ironically called “bankers” that steal your bank passwords.  Smart phone information is the next challenge for hackers.

Internet banking and mobile banking apps aren’t bad.  In fact, easy access to your information can be helpful in managing your cash flow.  You just don’t want anyone else getting your information.  With malicious hackers out there, it’s tough to protect yourself.  The best course of action is to use some basic common sense practices of protecting your personal information, and to only use secure sites.  Beyond those protective steps, you can insure against loss in two additional ways.  Start by choosing financial institutions that back you up with strong guarantees.  For example, Bank of America offers a zero liability guarantee for their consumer debit and credit cards.  Check with your bank to find out what your liability would be for fraudulent transactions.  Ask them if there is a time frame in which you need to report fraudulent transactions, and be sure to monitor your accounts accordingly.  For example, US Bank will cover any unauthorized transactions as long as you report them within 60 days of the first statement date when the unauthorized transactions appeared.

Secondly, subscribe to a credit monitoring service through one of the major credit bureaus.  As a former victim of identity theft, I try to be extra cautious and use Experian’s service that has daily monitoring, alerts, and a $50,000 guarantee with access to a fraud resolution specialist.  The new reality in the world today is in addition to life, disability, home and auto insurance, we may also need anti-fraud insurance.

If you are a victim of identity theft take action immediately. Report it to the police and place a fraud alert on your accounts with the credit bureaus.  With this action, a requirement to notify you if new credit is being requested in your name is added to your credit file (at no cost to you).  Close your bank accounts and transfer funds to new ones.  The sooner you take action, the better you can protect yourself.  The Federal Trade Commission has guidelines on actions to take – click here.

Watch out for the same scam but with a different disguise.  In almost all cases of fraud, there is no actual investment made.  The classic Ponzi scheme consists of paying off early investors with money taken in from late investors—a scam that dates as far back as 1899.  There may be other types of scams out there that have yet to be detected.  Ironically, this is actually one of the easiest things to catch.  The problem is usually the scammers seem beyond reproach.  Maybe they are part of a church or synagogue, or they are a well respected leader in the community, so the victims don’t do thorough due diligence on the investment.

The bottom line is with any investment, there should always be an independent statement coming from a third party.  If you are only getting an investment statement from the broker, and not the investment company, that should raise a red flag.  You should always receive a separate statement from the investment company where the funds are held with a general phone number to the home office.  Some other red flags include consistently high investment returns, unregistered securities, unlicensed sellers, and overly complex transactions.

Prevention is the best defense for this type of financial fraud since recovery of assets could be minimal at best.

Watch out – “Crowd funding” could attract the next wave of financial scammersCrowd funding has been around in the U.S. for years as a way for charities to raise capital, and President Obama was a master at generating campaign contributions through a similar system using Twitter and Facebook during his presidential election campaign in 2008.  Used correctly, crowd funding can be a boon for startups that are looking to raise money, which in turn will hopefully help create jobs in the U.S. “Used correctly” is the operative term because the system is fraught with potential fraud against unsuspecting investors.  For this reason, the recently signed JOBS Act has incorporated investment restrictions that are intended to protect investors, such as capping investments at $2,000 for investors with an income or net worth of less than $100,000.

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US STOCKS-Wall Street pares early gains on Bernanke comments - Reuters

Thu Jun 7, 2012 11:20am EDT

* Indexes pull back after Bernanke comments

* China interest rate cut lifts materials stocks

* Spanish auction successful, but worries remain

* Indexes: Dow 0.6 pct, S&P 0.25 pct, Nasdaq off 0.07 pct

By Chuck Mikolajczak

NEW YORK, June 7 (Reuters) - U.S. stocks rose on Thursday after China's central bank cut lending and deposit rates, but indexes were well off their session highs as comments from Federal Reserve Chairman Ben Bernanke disappointed hope for further stimulus measures from the U.S. central bank.

The surprise move by China's central bank to lower benchmark interest rates by 25 basis points in an effort to rejuvenate economic growth came after comments by Federal Reserve officials increased investor expectations for more Fed support.

In comments on Wednesday, Atlanta Fed President Dennis Lockhart and vice chair Janet Yellen led investors to become optimistic about the possibility of more easing ahead, due in part to the effects of the euro-zone debt crisis.

But the jump in stocks at the open faded as Bernanke told Congress the central bank was ready to take action if financial troubles increase, and he gave no hint of an imminent stimulus plan.

"People had built up this hope that something significant was going to happen, and perhaps, that was disappointing," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

"But the real news this morning is the Chinese are lowering interest rates, and it looks like Germany is starting to cave on this unwillingness to support peripheral euro countries."

The rate cut in the world's No. 2 economy helped boost U.S. companies linked to China's commodity-hungry industrial complex. U.S. Steel Corp climbed 1.1 percent to $20.25 percent, and miner Freeport-McMoRan Copper & Gold Inc edged up 0.6 percent to $33.87. The S&P Materials index gained 0.6 percent.

The Dow Jones industrial average gained 70.08 points, or 0.56 percent, to 12,484.87. The Standard & Poor's 500 Index rose 3.33 points, or 0.25 percent, to 1,318.46. The Nasdaq Composite Index shed 1.89 points, or 0.07 percent, to 2,842.83.

Germany's government and main opposition agreed on the outlines of a proposal for a European financial transaction tax, which could pave the way for parliament to approve a fiscal pact and permanent rescue plan for the euro zone.

Spain managed to raise more than 2 billion euros at a bond auction, tempering fears it is being cut off from financial markets, although it had to pay a heavy price to borrow the funds.

U.S. stocks jumped more than 2 percent in the prior session, coming on the heels of a decline of more than 6 percent in May. The index appeared to successfully bounce off its 200-day moving average, a key technical support level.

Shares in Navistar International Corp plunged 25.1 percent to $21.08 after it posted a second-quarter loss as a warranty reserve to repair early 2010 and 2011 vehicles drove up costs, and the truck maker cut its full-year earnings outlook.

Health insurer Molina Healthcare Inc recalled its 2012 earnings guidance, citing uncertainties regarding medical costs in Texas, sending its shares down 30 percent to $18.03.

Business confidence plunges amid worries - Business Day South Africa

BUSINESS confidence in May, as measured by the South African Chamber of Commerce and Industry (Sacci), fell to its lowest level since November 2002 at 92,8, from 94,3 in April.

Also on Thursday, the confidence index compiled by the Bureau for Economic Research (BER) for the second quarter of the year plunged, with sentiment in both the manufacturing and retail sectors hitting a two-year low.

Sacci’s business confidence index (BCI) is a strong gauge of the confidence levels of businesses in current economic conditions.

The chamber said on Thursday the index was now 8,4 index points lower than in May 2011 when it registered 101,2. Its highest level was 122,1 in December 2006, while its most recent low was 93,1 in March 2009.

The downward trend in the index, which started in April 2011, marks what Sacci has referred to as a conspicuous deterioration in the business mood.

Only two of the 13 sub-indices of the BCI were positive month on month. Both the financial and real economic components had only one positive sub-index each.

The annual comparison showed that only three of the 13 sub-indices — household spending (retail and vehicles), government spending and lower real interest rates — had improved in May.

Sacci expressed concern that the fiscal tightrope that Europe had to walk between economic sustainability and political intolerance would leave the euro-zone debt crisis unresolved for the short to medium term.

"The contagion from the economic impasse in Europe is gaining in global impact as faster-growing economies are now also experiencing a slowdown while circular and multiplier effects continue to grow," said Neren Rau, CEO of Sacci.

The chamber also warned that the unstable and weakening economic circumstances, both abroad and domestically, posed serious challenges to South Africa’s business environment and confidence.

"The lack of alignment across economic policy positions locally is cause for concern as business seeks policy stability in an increasingly perplexing domestic economy," Mr Rau noted.

The local business environment continued to be plagued by challenges, Sacci said. In terms of the municipal service sub-index, electricity output deteriorated, while real borrowing from the banking sector by municipalities declined compared with last year.

Sacci noted its disappointment with the performance of the composite sub-index for municipal services, which deteriorated month on month as well as year on year in May.


Meanwhile, the BER confidence index for the second quarter of 2012, sponsored by Rand Merchant Bank , dropped 11 points to 41, with indicators deteriorating in every sector except wholesale trade.

Manufacturing confidence collapsed to 29 from 47, with the percentage of manufacturers rating the general political climate a constraint on business climbing to 70%, an 11-year peak.

The overall reading of the index means that only four out of 10 respondents rated business conditions as satisfactory.

"The sharp drop in business confidence does not bode well for prospective private-sector fixed investment in particular, and economic growth in general," the BER said in a statement.

It added: "If ever there was a time to kick capital expenditure into higher gear, it is now."

Growth in the economy slowed to 2,7% in the first quarter of this year, from 3,2% in the previous quarter, seasonally adjusted and annualised.

"Given deteriorating prospects for consumer spending as well as for exports, the pressure is now even more on fixed investment to come to the economy’s rescue," the BER said.

Retail confidence plummeted to 39 index points in the second quarter from 61 points in the first quarter.

Morning business round-up: Spain's borrowing costs rise - BBC News

What made the business news in Asia and Europe this morning? Here's our daily business round-up:

Spain continued to dominate the headlines on Thursday morning as fears continue over its debt-laden banking sector.

But there was some good news for the beleaguered government after it experienced strong demand for Spanish bonds at an auction on Thursday.

This is seen as a key test of the country's ability to raise funds, but it had to pay a higher interest rate.

The rate on the 10-year bonds was 6.044%, up from the 5.743% paid when bonds were last sold in April.

Spain sold 2.1bn euros ($2.6bn; £1.7bn) in medium and long-term bonds.

Meanwhile German Chancellor Angela Merkel argued that the EU needs political union to prevent future financial crises, even if this means some countries integrating faster than others.

Speaking on German TV she called for "more Europe", including a budgetary union, saying "we need a political union first and foremost".

But she resisted calls for the joint issuing of eurozone debt.

European stock markets continued their cautious recovery on hope that Germany was closer to a bailout deal with Spain, even though the Spanish government insists it doesn't need any help.

In China, the government said it will delay the implementation of tougher capital rules for banks until January next near, amid concerns that they may hurt lending and slow economic growth.

The rules would increase the minimum cushion of capital a bank must keep to absorb losses on their loans.

China had planned to introduce the rules at the start of this year.

In Australia, there was some good news as jobs growth hit an eight-year high.

The economy added 38,900 jobs in May, far more than forecast, making 160,100 jobs in total for the January to May period.

The data follows better-than-forecast economic growth of 1.3% in the first quarter compared with the previous three months.

In the latest Business Daily podcast the team examines the thorny issue of executive pay through the eyes of Jerry Greenfield, co-founder of Ben and Jerry's ice cream.

They also speak to Greek actor, Lakis Lazopoulos, who is touring Europe with his show, "Sorry I'm Greek".

And regular commentator Wycliffe Muga reflects on the conflicts between development and sustainability in his homeland, Kenya.

CANADA STOCKS-TSX up as miners, oil get China boost - Reuters UK

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