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Fraud prevention expert and author Peter Goldmann discusses corporate fraud, identity theft, and the warning signs investors and businesses should recognize. This Financial Safari interview was recorded in September 2010.
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Transcript
Automatically transcribed from this episode; timestamps are approximate.
00:00 And welcome into the Financial Safari, your weekly show aimed at educating you about your money, about your finances, and about your financial decision-making. Peter Rashan here, along with Coach Pete D’Arruda. And to round it out, we've got three Peters on the program today. We have Peter Goldman, who is the president of Fraud Aware and the author of many anti-fraud books, including Anti-Fraud, Risk and Control, Detecting and Preventing Fraud in Accounts Payable, and Fraud in the Markets, Why It Happened and How to Fight It. Good morning, Peter, and welcome into the Financial Safari. Good morning, you all, and thanks for having me on. Absolutely. It's a pleasure to have you. Now, fraud is out there, and we are looking to help folks prevent it. So what do we need to be aware of? What do we need to be looking out for? Where is it most common? Well, there are two different types of fraud that are finding their way to the headlines these days.
00:48 One type is what we call corporate fraud, where you're reading about, you know, corporate CEOs being caught with their hands in a cookie jar, so to speak, or cooking the books and ending up doing the perp walk and, in many cases, ending up behind bars. That's one type. It's very prominent. Unfortunately, that's growing. And the other we like to call consumer fraud, which is a broad category incorporating investment schemes, Ponzi schemes like the one that Bernard Madoff perpetrated, which, you know, ended up stealing $60 billion from basically individual investors as well as some of their institutional advisors. And then there's mortgage fraud, and there's identity theft, and, you know, I could go on and on. But all these frauds are what I would call rampant. They're all over the place.
01:34 Some of the perpetrators are extremely shrewd and extremely practiced and know what they're doing, and sometimes it's hard to tell the good guys from the bad guys. So hopefully we can shed some light for the folks here on the red flags of how to stay out of trouble. Yeah, Peter, this is Coach Pete. We're glad to have you on the show. So let me tell you, people like our show nationally because we combine the news of the day with the financial world and help people, more importantly, draw correlations between the two because there are big parallels there between the two. Now, let me ask you, over the last year, what are some of the three biggest frauds you see perpetrated on the American investor, and are there ways that people could have sniffed it out ahead of time, and more importantly, what can they do in the future to make sure that doesn't happen to them? Good question, Pete. One of the three I would definitely say is mortgage fraud, and that happens in a number of ways.
02:23 It happens in the process when people are buying homes, and this actually was probably more prominent before the meltdown in the housing market, but it's still, according to the FBI, extremely prominent and is going on all the time. And what happens there is that dishonest mortgage brokers and lenders will try to convince borrowers who are trying to buy a home to take on a mortgage that they really can't afford. These are mortgages that come with kind of what we call teaser, introductory payment rates that are very, very low, but after a few months, they'll readjust and end up being so high that the person can't afford to make those payments, so they end up losing their home to the bank. That's one type of fraud, and the best way to avoid being scammed by these types of perpetrators is to,
03:10 number one, make sure that the banks that these brokers are representing are national, well-known banks. Even call the banks to find out whether the broker that has approached you actually does sell mortgages on behalf of that bank. Also do a Better Business Bureau reference check on the broker to see if there are any blemishes in terms of, you know, complaints against the broker. Those are probably the best ways to avoid getting scammed by a dishonest mortgage broker. And, Peter, we saw a lot of that in 2005, 2006, 2007, why a lot of people were getting foreclosed on in 2007, 2008. And, Pete DeRuda, Coach Pete, you wrote about that in your book, The Fine Print Fiasco. But are we still seeing that going on with the new regulations that have been put on the mortgage world, Peter Goldman?
03:58 Yes, there has been a very noticeable decline in that kind of fraud. Not so much because of the regulations, but because the banks, for the most part, are not lending. They're not offering those kinds of easy-to-get mortgages as much as they were during the housing boom. However, it is important to know that it has not gone away. There are banks that are, and I've heard this from mortgage brokers and lenders themselves, there are banks out there that are still lending 100%, aren't even requiring a down payment. So some of these banks have still not tightened up their standards for lending, and that provides opportunities for unscrupulous mortgage brokers. So you're right. That problem has substantially subsided, but I mention it only because it has not gone away. What's taken its place, I guess you could say, are various types of foreclosure fraud.
04:47 But these are frauds perpetrated against people who are now in danger of losing their home. Taking advantage of people in a vulnerable situation. Correct. These are people who did take on these teaser rate mortgages in 2005, 2006, and 2007, and are now finding that their payments are much higher than they were at the beginning and much heavier than their household budgets can sustain. So they're now, you know, falling behind in their payments. The banks are coming down on them, you know, asking why they're not making their payments. And, you know, when things get really bad, they're being sued by the banks for foreclosure. That's happening in a lot of just totally legitimate cases where, you know, unfortunate homebuyers got themselves into loans that they could ultimately not afford and now are in trouble.
05:34 But the problem is that where there's desperation, there's opportunity for fraud. And you've got unscrupulous organizations or individuals promoting themselves as foreclosure rescue agents, if you will. They'll promise you to prevent foreclosure by modifying your mortgage. Or sometimes they'll actually tell you that they will take over your mortgage and make the payments and allow you to stretch out the payments and lower the payments. For a small fee. The problem there is what they do is they also end up owning your home. They don't tell you that. But in the process, they end up owning their home and they can kick you at any time they want. Yeah. In my book, Peter, The Fine Print Fiasco, what I said was for the bait-and-switch kind of mortgage fraud, you have to be careful of the teaser rate, like you were talking about, teasing you with a low rate and then all of a sudden they loan balloons and you're in a higher rate.
06:21 And reverse mortgages, we saw a lot of scams there, too. But the most important thing, I used to be a mortgage broker. I decided not to keep in that because I'm a full-time investment advisor. But I also was a mortgage licensee, too, even though I didn't do mortgages. But I feel that I know mortgages pretty well. I think before anyone should sign any paperwork on any kind of mortgage, they should have it reviewed by someone who has mortgage experience or knows what's in a mortgage. And we offer that to folks. All they have to do is give us a call. But what I really wanted to get to the meat and potatoes today is what we hear about over and over again on the news. It's free advertising for scam artists, and it's called stimulus bills. And you specialize in identifying the stimulus money fraud that's out there where people think they're going to get stimulus money and all they have to do is, again, pay a small fee. It's like the Nigerian scam all over again, isn't it? That is, in many cases, a Nigerian scam-type fraud.
07:07 It involves the same kind of psychological technique. Send me your bank account number and your Social Security number in a small advance down payment, if you will, and we'll grant this stimulus grant to you. We'll send you a check. And, of course, what happens, sometimes they will actually get a check, but it'll typically be a counterfeit cashier's check or something to that effect. But the more important danger, obviously, is that advance fee money that the victim has paid is gone for good. And, ultimately, they're at risk of being victimized for identity theft because they've given over their Social Security number and their other identifying information that can then result in the perpetrator applying for loans and bank accounts and credit cards in their name.
07:53 Where has the news gone about identity theft? Because that is absolutely still rampant, still one of the highest-growing crimes in America. And we were hearing about this two or three years ago, but then the market crashed and all the economic debacle happened. And the news about identity theft just kind of disappeared. I don't hear about this anymore. And I really think that this is an issue that needs to be brought back to the forefront with things like you're talking about, with credit card fraud and the like there, all falling under the umbrella of identity theft. There's no doubt about it. It has not gone away. It could be that the media has moved on to more the fraud du jour, if you will. But identity theft, you're absolutely right, is continuing to grow and is proliferating into different formats and different types.
08:39 What we're not hearing enough about is the way that identity theft typically starts is by having databases of individuals' credit card information, social security numbers, or other what we call personal identifying information stolen by hackers who break into large retailers' banks, university databases, and those sorts of institutions that store supposedly securely large volumes of individuals' personal information. With all that personal data out there, Peter, under corporations' control, and a lot of times us as individuals, as consumers, don't even know where our personal information is being stored. With the vulnerability to hackers, how can we as individuals, what steps can we take to try to prevent that?
09:25 Good question. Let me put it this way. It is virtually impossible to avoid being a victim of identity theft. Comforting. Right. When you say that we don't know where our information is, it couldn't be truer. It's so easy for people, either honest people or dishonest people, to get it because it is literally all over the place. I mean, it is whenever you apply for a car loan, for a student loan, for a mortgage, for a passport. Whenever you submit your social security number to anyone and your address and birth date, that information, you know, depending on who the recipient is, more or less vulnerable to theft. And unfortunately, in more and more cases, the question of more vulnerable rather than less. But your question was, how do you protect yourself? And the answer really is that you do a biannual check of your credit report with the three credit reporting agencies.
10:16 And I personally think that's not enough because of the bead at which identity theft is growing and proliferating. I would say that it's worth your dollars, personal dollars, to do a monthly check. Absolutely. That means looking to see if there are any unauthorized or unusual transactions on your credit report, which would indicate that somebody has, for example, stolen your credit card number or made a counterfeit credit card with your legitimate credit card information on it. Peter, we're going to have to wrap this up, but what I want to do is let them know you're going to be moving down to the North Carolina area in the next few months. And what we want to do is when you get situated down here, maybe offer a few identity fraud seminars where people can come and learn a little bit about you and about some of the things you offer. I'd be more than happy to do that. We've just sort of scratched the surface of fraud here, which is sort of unfortunate given that it is such a prominent and rampant problem.
11:07 But I do a lot of that up north here in terms of training folks, both corporate and individuals, in how to protect themselves against different types of fraud. It's a moving target, you should know. And one of the things that we might want to address in a future session or a training event is check fraud, which is, believe it or not, growing at 25% a year. And this can backfire on individuals as well as corporations in a major way. That's just one of many types. But the identity theft thing is something that has been underreported in recent months, and I'd be more than happy to help folks out in any way that I can on that score. Well, we're looking forward to getting together with you and having another discussion when you get down here in the next couple months, Peter. We appreciate you sharing your time, your knowledge, your expertise with us and our listeners here on the Financial Safari. My pleasure. I appreciate it.
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