Phantoms lurk in every investment scam. Sometimes they take the form of big payoffs; other times they are the security of "guaranteed" returns. Fraud experts call them "phantom riches." Not surprisingly, criminals are never able to deliver on their promise because the riches don’t exist.
Research funded by the FINRA Investor Education Foundation found that “phantom riches” are one of the most common tactics used to rip off investors.
"The phantom's purpose is to get you to stop thinking logically," said Doug Shadel, the Washington state director of AARP and an expert in financial fraud who led the research team.
Experts like Shadel say that, if you want something badly enough, it can really hinder your ability to examine an investment offer carefully. The con’s goal in putting phantom riches in front of you is to move you out of the logical reasoning part of your mind into the emotional. Con artists call it “putting you under the ether.”
Jameson Kauhi of Vancouver, Wash., knows what that ether feels like. A local businessman lured him into a scam promising him millions of dollars in a real estate development investment. But first Kauhi had to pay $82,000 in fees to access that money. All the documents looked good, and the con was a smooth talker. "He knew how to push my buttons to cause me to give him the money," Kauhi said.
The businessman was eventually convicted of racketeering and fraud. While Kauhi was awarded damages, he doesn’t expect to collect anything.
The best way to avoid getting manipulated by the “ether” of phantom riches is to slow down the pitch:
• First, ask questions. Ask if the seller is registered with FINRA, the U.S. Securities and Exchange Commission (SEC) or your state securities regulator.
• Second, check the answers before investing. Don’t just take the seller’s word for it. Check out the information you receive yourself—no matter how legitimate the seller and investment seem.
For more resources on spotting investment fraud tactics, visit the FINRA Foundation's website www.SaveAndInvest.org/FraudCenter.
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- Financial Fraud Prevention