How to Avoid the 5 Most Common Types of Fraud

The creativity of scammers trying to separate you from your money is boundless. The jewelry dealer proffering an heiress’ diamonds or the hacker who convinces your bank to wire a large chunk of money...Fraud is a growing daily risk and the consequences can be costly.

Accurate statistics are notoriously hard to come by as many people, especially the affluent, don’t want to report they have been fooled. But the Federal Trade Commission counted 1.1 million fraud incidents in 2017 in which people lost money. The losses totaled $905 million, up 22% from the previous year. There were nearly 11,000 reports of frauds that resulted in losses of $10,000 or more.

In the last few years, we’ve seen five common types of fraud that have impacted our high-net worth clients. Here’s what to look out for, a dose of prevention and how best to protect yourself should you fall prey.

The scam:  Unfortunately, people you employ sometimes misuse the trust you place in them and steal your money, property, or get credit in your name. The variations are endless, and sadly perpetrators include “loyal” long-time employees like the personal assistant who took out a credit card in the family’s name after a decade of employment.

Prevention: Do background checks on all new hires. Double check all transactions on accounts for which employees have access. Often the theft begins with a few small indulgences, but if they aren’t caught, the take gets bigger. If you are too busy to balance the checkbooks, make sure someone else is not and can keep an eye on it.

Protection: Employee dishonesty policies are available for this type of scam and additional coverage may be accessible through your homeowners policy. If your staff is employed through a corporate entity like an LLC, your broker may be able to secure coverages through a commercial market.

The scam: Crooks steal your password, log onto one of your accounts, and cause trouble. They could transfer money from your bank, order goods billed to your account, or get information on your travels to plan a robbery or kidnapping.

Prevention: You’ve seen advice about good password protocol hundreds of times. Follow it. Focus on the important accounts—banks, brokers, email accounts. Make sure each of them has a different password so stealing one doesn’t mean getting keys to your whole kingdom. Sign up for two-factor ID systems that text you a unique security code when you log on from a new device. And avoid using high-value passwords while using WiFi networks in airports, hotels or other public places.

Protection: Many homeowners policies offer optional cybercrime coverage enhancements. These policies often protect you against cyber related losses and assist with the cost of experts who help restore data, determine the cause of an attack, and more.

The scam: It isn’t out of the ordinary that an individual fabricates an accident hoping for a large payout. They see you in an expensive car, pull in front of you, and stop suddenly. What a surprise - they develop neck and back pains. Now they threaten you with a lawsuit based on their “injuries”.

Prevention: If there is an accident, try not to say anything that admits fault, and gather as much information as you can. We have some more pointers on what to do in this scenario here.

Protection: An excess liability policy, also known as an umbrella policy, provides coverage if you are liable for an event, such as a car accident, and often includes legal defense costs. It’s important to be sure that you have enough coverage in place to protect all of your assets in the event of a lawsuit. If you aren’t sure you are properly covered, contact your broker before a major problem arises or take this short quiz.

The scam: Trade in forgeries is shockingly common and often goes undetected for years.

Prevention: Buy only from reputable dealers, but don’t count on reputation alone. For example, in 2010, Taitiana Kahn a well-respected Los Angeles gallery owner with a 40- year track record, pleaded guilty to selling a fake Picasso for $2 million. It pays to have major investments—or things that seem too good to be true, like a half-price Picasso—inspected by independent experts.

Protection: Title insurance can help protect fine art collectors if a piece’s seller turns out not to be its rightful owner. Although title insurance can sometimes be costly, there aren’t an abundance of solutions in the marketplace for this type of scam. Therefore, be sure to do your due-diligence during the buying process to make sure you don’t purchase a Rembrandt with a fraudulent title.

The scam: Fraudsters convince you, a family member or employee to transfer money to their bank account. Often, they hack into your email to learn how money moves in your household. Then they pretend to be someone—real or made up—with a convincing story and the number of a far-off bank account.

Prevention: Limit who has access to your accounts. Have rules requiring verification, by voice, not email, for transfers above a certain amount.

Protection: There are multiple cyber and fraud policy endorsements that can provide coverage for this type of loss. If you aren’t sure you have the proper endorsements in place, check with your broker. In addition, carriers often partner with experts who offer risk prevention services such as personal security assessments, protection plan consultations, and more.

While each of these scams is different, the best way to protect yourself is to practice preventative measures. Create a process with double checks and independent verifications for any transaction of significant size. If someone is trying to rush a deal or keep it quiet, be very suspicious. Don’t forget to speak with your broker to ensure you have the right policies in place in the event you do become a victim of fraud. They will be able to provide access to experts who can verify employee backgrounds, secure computer networks, authenticate artworks and provide other services that can keep your hard-earned money out of the hands of scammers.