Good afternoon. I am pleased to share the platform with NASAA to announce "Field of Schemes." This project targets telemarketing investment fraud and pyramid schemes -- frauds that have become epidemic.
They are proliferating in number and type. Everything from new schemes that involve internet shopping malls and movie productions to age-old schemes that involve precious metals, oil drilling ventures, and pyramids. All these schemes are alike in one, very important, way: the only ones who profit are the scam artists.
In fact, consumer losses are enormous. In the nine FTC cases, consumers may have paid defendants more than $150 million. According to our complaint database, investment frauds account for more dollar injury to consumers than any other area of telemarketing fraud. Fraudulent investment promoters use similar tactics:
These tactics, and more, were used in the schemes targeted by the FTC. In one case involving new technology ventures, the operation was massive, sophisticated and -- unfortunately for many consumers -- highly successful. It involved a nationwide network of telemarketing boilerrooms and bilked more than $30 million from consumers, many of them elderly. Among the offerings in this scheme were partnerships in "virtual shopping malls," touted as the next version of television's QVC shopping network -- only better because the internet reaches a global market. This partnership venture was structured to give the promoters 85 percent of the proceeds, leaving only 15 percent for operation of the company. That structure made it a sure-fail, rather than a sure-fire, venture.
Investors now see that the promised businesses never materialized, and contrary to the promised returns, they are left with little or none of their hard-earned money. Perhaps the saddest part of this story is that a number of them had invested more than once; the defendants re-solicited or "reloaded" them before they could see their first investment had failed.
Another tactic scam artists use is to make false claims that third parties are interested in purchasing the investment or have confirmed its value. For instance, promoters in another of the FTC cases told prospective investors in their gold and silver mining operations that two major corporations -- Exxon and Mitsubishi -- had expressed strong interest in acquiring one of the mines. They also claimed that government studies had confirmed the presence of millions of dollars worth of mineral deposits in the mines. The truth? Neither corporation had indicated any interest in the mines, and the government study actually contained no data on which ore reserves could be calculated. Related statements that the government validated the economic value of the claims by issuing patents also were false. The patents in question, issued before 1900, indicate nothing about the existence of valuable mineral deposits on the land.
The defendants reloaded investors in this mining scheme too. They quickly paid a 7.5 percent return to those who invested in the first mine, and then recruited them to buy into the second mine. Seventy-five percent of them did.
All these fraudulent operators have found ways to exploit consumer concerns about their financial security. Too often their unscrupulous ways are quite effective.
Given this reality, consumers must learn to protect themselves. Indeed, we view consumer education as the first line of defense against fraud, and an important goal in our "Field of Schemes" initiative. To get the message out about investment fraud, we have developed materials that are in your packets, including an interactive game linked to the FTC's web page that tests consumers' "IQ" -- that is, investment quotient.
Our advice to consumers can be boiled down to this -- before you invest:
For example, had consumers sought a second opinion about the virtual mall partnership, they would have learned that the enterprise was structured to fail. Had consumers solicited to invest in the mining operation made a call to Exxon or Mitsubishi, chances are they would have learned that the promoters were lying.
As law enforcement agencies chase the scam artists, they move on to new fields. These tips can help consumers stay a step ahead.