Let's Talk About Fraud

July 13, 2023

Fraud continues to be a major problem in the United States. According to the Federal Trade Commission, American consumers lost nearly $8.8 billion to fraudsters in 2022, a 30 percent increase over the year before. Investment scams produced the largest losses ($3.8 billion), followed by imposter scams ($2.6 billion). Identity theft, another major category of consumer crime tracked by the FTC, is also a serious problem. Although dollar losses from identity theft are harder to quantify, the FTC received 1.4 million reports of identity theft in 2022—triple what it was ten years ago.

Most of the time, it may feel like these crimes are far away from us, but they are sobering when they hit close to home. Last week, a dear friend who lives in the area, shared with me the following story.

“Yesterday was very stressful. My husband received a call about a $1400 computer that was supposedly ordered on Amazon. The caller told my husband that someone had stolen his ID and had opened five bank accounts in his name. He said that Chase had been notified and was putting a freeze on our checking account. He then transferred my husband to a man by the name of Thomas James McCarthy.

“McCarthy said he was a U.S. Marshall and that we were being investigated for money laundering. He claimed they were going to freeze all of our bank accounts, including the 5 accounts that were recently opened with my husband’s Social Security number. My husband panicked. With McCarthy still on the phone, he was told to immediately go to the bank and withdraw $1,500 in cash, and then take the money to grocery store in Salinas and deposit it into a ‘government escrow account.’ McCarthy assured him that the money would be returned to us as soon as the investigation was over.

“On the drive from the bank, my husband said he wanted to talk with me before going to the grocery store, but McCarthy was adamant that he talk to no one. Fortunately, my husband ignored that last instruction. When he told me what was happening, I took the phone and was immediately surprised that someone with a name as thoroughly Irish as ‘Thomas James McCarthy’ would have such a thick non-Irish accent. After I accused McCarthy of being a scammer, he hung up and we never heard from him again.”

To me, the amazing thing about this story is that the husband—a man I know to be intelligent and savvy—would have followed the scammer as far as he did. This is the critical point we all need to understand—not all victims of these crimes are ignorant bumpkins. You and I are all susceptible; we all need to be vigilant.

In a recent Wall Street Journal article, psychology professors Daniel Simons and Christopher Chabris wrote, “Everyone knows not to click on dubious links in emails, but when we’re busy and the fake messages resemble the legitimate ones we get every day, it’s easy to be fooled. A test by the Dutch Ministry of Economic Affairs found that 22% of people who received a suspicious work email about password recovery clicked through and typed in their password.”

If everyone knows better, why do so many people continue to fall into the trap? Simons and Chabris suggest that one reason could be that con artists know how to take advantage of natural tendencies that usually benefit us. For example, Daniel Kahneman, the Israeli psychologist who was awarded the 2002 Nobel Prize in Economics, believes that people tend to assume that “what they see is all there is.” In other words, they take things at face value instead of asking tough questions about who or what might be behind a phone call from an unknown source. In normal daily life, this tendency is very efficient. Unfortunately, it leaves us open to scammers.

So, what is the solution? Long ago, Eleanor Roosevelt said the price of freedom is constant vigilance. This same principle applies to our financial security. In the words of Chabris and Simon, we need to “curb our enthusiasm and ask ourselves what is missing?” Whether we are dealing with scammers on the phone or with investment pitches on the radio or television, we need to slow down and take a careful look before we leap.



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Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to smerrell@montereypw.com.