In this third part of our feature on scams, we expose another five tricks which scammers use to steal your cash.
In part one of this series, Steer Clear Of These Scams, we revealed seven ways to lose money to fraudsters. In part two, Five More Scams To Shun, we unveiled another five swindles to avoid. Now it's time for part three, with five more to get fleeced:
1. Iffy property investments
As well as lightweight, overpriced property seminars, you need to watch out for sham property-investment firms.
One infamous example was Practical Property Portfolios Limited (PPP), which promised 'rent guaranteed' returns of 15% a year to investors with £18,000+ to pump into buy-to-let properties. When members of the Fool community criticised PPP on our discussion boards, the firm threatened us with legal action. Happily, the 'Fool Curse' on rogue businesses came to our rescue yet again: PPP was raided by the police in March 2003 and the Department of Trade and Industry shut down PPP and several linked firms a year later.
Always remember that property-investment schemes of this type are not regulated by the Financial Services Authority (FSA), so you're not protected by the safety net provided by the Financial Services Compensation Scheme (FSCS) if you come a cropper. These are good enough reasons to avoid all such schemes, in my view.
2. Land-banking swindles
This ruse involves selling small plots of land to investors by claiming that a particular area is ripe for housing development and, therefore, land prices are set to soar.
The truth is somewhat different: anyone handing over, say, £5,000 for a house-sized plot somewhere in the British countryside has been taken for a ride. In almost every case, these plots of land have no planning permission and little or no chance of being built on in this lifetime. What your five grand has actually bought you is your own private field somewhere in the middle of nowhere. Ouch.
3. Lotteries
Although the National Lottery and its operator, Camelot, are entirely reputable, government-endorsed enterprises, I put it to you that all national lotteries are scams. This is because of the relentless rules of lottery mathematics.
For instance, our Lotto pays out just 50p for every £1 ticket sold. Hence, your long-term expectation should be to lose half of all money staked on the lottery, but this assumes that you win some big prizes along the way. If you don't win a Jackpot or pick five numbers and the bonus ball, you can kiss goodbye to perhaps four-fifths (80%) of your lifetime spend on the Lotto. D'oh!
Hence, lotteries have been described as 'regressive taxes', 'taxes on fools', 'mathematical taxes' and 'voluntary taxes'. For the record, I don't play the Lotto and, given half a chance, I'd scrap this state-sponsored gamble at once.
4. Rip-off scratchcards
I don't mean those National Lottery scratchcards sold by retailers, although these are indeed a waste of money. I hate the scratchcards that fall out of newspapers and magazines or arrive unwanted on your doorstep. In order to claim your guaranteed 'prize', you scratch off some silver panels and then call the 090 number listed. The fiddle here is that your call will cost £1.50 a minute and last, say, six minutes, but your reward will be worth a fraction of this sum -- perhaps £1. Oops, you've been done!
5. Share buyback frauds
Although I touched on this topic in part one of this series, I believe that it's worth revisiting, as several investors have mentioned this boiler-room trick to me. This scam appears to happen most often to investors in small companies, particularly hi-tech firms whose shares are worth a fraction of what they once were.
One friend of mine was cold-called with an offer to buy his shares in a small technology firm for £4.50, or fifty times the market price of around 9p. Of course, my chum was keen to hear more, but the story he was given was utter hogwash. Quite simply, there's no way that any 'major private investor' or fund manager would want to corner the market in a company's shares by buying them at fifty times the usual price. Even in genuine corporate takeovers, paying premiums of, say, 50% over the prevailing price is unusual.
Sure enough, when my friend was asked to pay an upfront fee to join this privileged takeover group (advance-fee fraud, yet again), he told the boiler-room salesman to take a running jump. What he actually told the salesman to do is too offensive to reproduce here!
Finally, remember the old saying, "If it looks too good to be true, then it probably isn't true". It may just prevent you from losing your life savings one day. Also, if you have any scams to report, visit our A Fool and His Money discussion board or click on 'Give feedback' below. Keep your wits about you, folks!
More: Visit the Office of Fair Trading's Scambuster website, the Canadian Crimes of Persuasion