I suppose that since I’m a lawyer I should start this out with some kind of disclaimer about this not being real legal advice, me not being your lawyer, and you getting a real lawyer before doing anything. So there you go, I have disclaimed, don’t try to sue me or anything.
This is going to be part 1 of an ongoing series. Pretty much ever since I started law school, I’ve been coming across things, either in class or at work lately, that I feel most people need to know, and shouldn’t have to pay back 6 figures of loans just to find out. So, I’m going to start writing about some of those things. Most of it is straight common sense when you think about it, but for some reason a lot of people never do. So don’t ever say your boy E never did anything for you.
Today’s lesson is mostly going to be on something called an advance fee loan scheme. Basically this is a scam where someone promises to make/give you some huge amount of money, but in order for him/her to do so, you have to send in some significant amount as a fee or down payment for the service. If this sounds familiar it’s because there’s probably an email sitting in your spam folder right now from a deposed nigerian dictator saying the same thing. The scam is so prevalent over there that everybody knows the criminal code for it and it’s just referred to as a “419.”
This kind of scam isn’t new, it’s just evolved over time. It was originally called the “spanish prisoner” scam. Now it’s been updated to use the internet and email, but it’s still basically the same. Believe it or not, people still fall for it, which is why you still get those emails. Think about it, if they send out a million emails, even if they only get a response rate of 1% (from those gullible people that are reading an email for the first time) it’s still worth it to them because the cost of sending out a million emails is practically nothing.
Anyway, I’m don’t really mean to go on talking about the 419 scams, because I’m sure you’re just deleting those. Last week in the judge’s courtroom, we had a guy on trial for a similar thing though. People with business ideas hooked up with this guy and his brother, usually through a friend, and he promised them that he could get them tens and hundreds of millions of dollars in funding in return for regular interest payments on the amount loaned out, as well as a small equity stake in the companies. All they had to do was send in a small upfront payment of $25,000 and he would hook them into an international network of banks distributing “humanitarian” funds that only a select few people had access to. Quite the load of bullshit there, but he ended up getting more than $300,000 from unsuspecting clients before the feds ended up tagging him with wire fraud (the jury found him guilty, quickly).
There are probably many many reasons this guy was able to get over like that on so many people. But there are a few things that stood out to me. I was sitting there listening to the victims’ testimony and wondering how they could have ever thought this was legit, and I tried to come up with some warning signs/reasons the got taken like that. In my mind, these seem to be the two biggest factors.
Knowledge/Ignorance. Not everybody is familiar with certain types of financial transactions and terminology. Nothing wrong with that, but just because you don’t understand something and someone else says they do, it doesn’t mean that you should trust them with your money. This guy just strung together real financial terms and transactions to made up ways that didn’t really exist, but sounded official enough, and people handed over their cash. If an opportunity presents itself for you to make some money, please just do some research on your own, or ask somebody else that knows about that type of stuff, and don’t let anyone tell you that you can’t do that (one aspect of these schemes is that they sign you to a non-disclosure form or tell you you’ll be kicked out and lose your money if you tell anybody at all). If you still don’t understand it, you probably shouldn’t be giving that person your money anyway, even if it’s legit. Also, check to make sure the person/company has the correct licenses/registrations.
Greed/Desperation. Bad combination, this one here. Some of the people felt like they wouldn’t qualify for a traditional loan, but bottom line, most of these people got greedy. I mean come on now, one person said he was promised $210 million, and all he had to do was give his 25 grand and sign some stuff. I’m sure that huge amount of money staring him in the face, combined with low interest on the loan and a smaller equity stake than what venture capital investors would have asked for sounded like a great deal at the time. Maybe not so much now. Turns out they should’ve just headed to a community bank that works with small businesses. One guy lost some of his parents’ retirement money.
Hopefully I don’t paint too many legitimate businesses with this brush, because you could probably describe some perfectly legal businesses that sound like this. But basically, it seems like almost any deal where you have to cough up money upfront just to qualify for a loan or to be eligible to make some ridiculous amount of money in the future is AT LEAST a ripoff, if not an outright scam (I’ll talk about those semi-pyramid schemes where you have to sell shit to your family and bring in people to work for you some other time). Don’t let it happen to you people.