Chapter Eighteen

FRAUD

Con men, cheats, swindlers, rogues, rip-off merchants, fraudsters, all aim to get between you and your money. It draws them like doughnuts attract wasps.

Wherever there is money, you find cheats. The fool and his/her money are soon parted, but some very clever people have been swindled out of their money too. There is a snowball effect; once a fraud develops beyond a certain size, people are more easy to deceive. This is why modern scandals - the BCCI crash, the Maxwell Group's disappearing millions - reach mammoth world-wide proportions.

Fraud means telling lies, or abusing your position, to get your hands on other people's money - like the wicked uncle trustee who helps himself to his infant nephew's inheritance. Lies can be written down, perhaps in a prospectus. This is the glossy brochure which invites people to invest in a new limited company. Besides, you probably received some fraudulent offers in your email letterbox today, especially from Nigeria.

HOW TO PROTECT YOURSELF AGAINST FRAUD

First, you should know what return it is reasonable to expect on your money. This way, the promises of fraudsters stand out. Basically, fraudsters build up your greed and then play on it. Once you start seeing pound note signs, they have hooked you.

Beware of people who promise impossibly high returns, like investing in gilts for a return of 25 per cent p.a. No government (no safe government) pays 25 per cent interest to borrow money. Investments in equities should pay more than gilts, but you would be foolish to expect 25 per cent even from them.

What is unrealistic? This varies with the base lending rate. I suggest the following crude guidelines.

If the base lending rate stands at 7 per cent, you should be able to find interest of 7 per cent gross on a good, safe investment. If you are lucky, have a large sum to invest and are prepared to take a certain amount of risk, 10 per cent is possible. Fifteen per cent or above is wildly unlikely.

Similarly, if base lending rate is 13 per cent, hope for 13 per cent on a safe investment, 15 per cent on a risky one. Twenty per cent or above is very suspicious.

Beware of  'double-your-money' schemes. How long do they promise before it doubles? Over seven years, money doubles at 10 per cent interest. So anyone who promises to double your money over seven years is only promising 10 per cent but tying up your money for seven years.

Beware of investments with a charitable link-up. Sometimes fraudsters 'borrow' the name of a popular charity to attract potential investors, and the charity will see very little of the profits.

'My client contributed £15,000 to the Spastics Society,' declared the solicitor proudly in court.

'Wow, that's a fortune,' whispered my student next to me. 'Why ever was he arrested?'

'Hush.'

'What proportion of the bingo money was handed to the society?' asked the magistrate.

'One per cent.'

My student whipped out his calculator. He turned it to me to show that the rogue held on to £1,485,000 from people who thought they were helping spastics! The magistrate could do his sums too. He sent the bingo organizer to prison.

The next way to protect yourself is to deal only with large, well-known organizations. Stick to qualified lawyers and check up with the FSA that your independent brokers is registered. (If he is not - do not believe any twaddle like the name of the firm is being changed and the registration is not yet complete. Go elsewhere.)

Professional organizations insist that their members carry heavy professional indemnity insurance. If a partner or an employee makes a mistake or is dishonest as a result  of which the client loses money, the insurance company reimburses the client. Most professions, like chartered accountants, insist all members carry such insurance. The sums covered run into millions.

When investing, write your cheque directly to the organization with which you are investing - never to the man who collects it, or your money may travel no further than his bank account.

Never do business with unqualified relations, or with people you only meet in pubs, at a party or over the garden fence. Insist that all agreements are drawn up by a lawyer, not just made by word of mouth. Men are much more gullible than women, because they always expect to make money, whereas women are afraid of losing it.

HOW CAN YOU TELL IF YOU ARE BEING CHEATED?

Some crooks carry on cheating the same victims year after year until they have extracted every last penny. They just produce a new 'It can't fail, forget about the last one' scheme. Some of their most profitable ploys are the oldest - like pyramid selling, chain letters and bills for goods you never ordered.

Warning signs can be:

-  no documentation;

- they insist on cash, not cheques;

- repeated delays in supplying whatever goods/documents they promised;

- they urge secrecy because the offer is too good for everyone to benefit, you are one of the select few;

- constant fobbing off;

- the person is never available to see you (contrast the time they allot you now compared to when they were persuading you to invest);

- their phone number becomes unobtainable (cut-off?).

The signs may still appear too late to save your money.

Bill was just one of many who discover that people who mess you around can cause you just as much harm as out-and-out cheats. This is how Bill blew £353,000, his retirement lump sum, in  single year.

He met a man in a pub. They agreed to go into partnership. There was nothing in writing. Bill did not consult any professionals at all. He signed a lease for prestige offices in the middle of town for the new business. The lease was for several years in Bill's personal name.

Bill himself bought the headed paper, took on a secretary, even bought a limited company. He wasted time as well as cash on the new venture. The friend never appeared. Bill was saddled with rent and the other outgoings for a venture that never even started.

Where was the fraud? This is the infuriating thing, there was none. His pub 'friend' never took a penny. Bill lost much of his lump sum, but there was no one he could sue, no one to blame but himself.

Bill shrugged his shoulders; he still had plenty left. Not deterred, he discovered another road to riches. He bought a container lorry that he planned to drive himself.

Just then the newspapers trumpeted the complaints of out-of-work lorry drivers and haulage firms going broke because the market had shrunk.  Bill soon discovered this for himself. No one wanted his services, and the smart new lorry sat outside his house - a white elephant. No one would even buy it from him.

Of course, Bill threw all the blame on the man in the pub and the lorry salesman - never on his own lack of care or foresight. If he had pinned down the friend at the outset by dragging him off to a solicitor to draw up a formal agreement, his friend would probably have cried off at that stage.

Bill should never have swallowed the claims of the slick lorry salesman without a little research of his own. It only needed a phone call or two to hauliers to find out if they would be interested in hiring his lorry. Their sharp reaction down the line would have convinced him to think again.

Suffering from stupidity or blatant fraud is one side of the coin. People can also often find themselves committing fraud without any dishonest intention, and laying themselves open to the consequences if they are found out. How honest women can find themselves in this pickle we look at in the next chapter.

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