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Financial Crimes Training Appeals to the dreamer in us Brings out the worst traits in humans, particularly feeds greed. Professional persuader, takes.

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Presentation on theme: "Financial Crimes Training Appeals to the dreamer in us Brings out the worst traits in humans, particularly feeds greed. Professional persuader, takes."— Presentation transcript:


2 Financial Crimes Training



5 Appeals to the dreamer in us Brings out the worst traits in humans, particularly feeds greed. Professional persuader, takes control of the conversation, and builds relationships with the intended victim. Very friendly, yet controlling. Makes people feel inadequate or stupid if they do not believe him/her. The Typical Criminal

6 Central Registration Depository CRD is a computerized database that holds qualification, employment and disclosure histories of registered securities employees. In most cases, any person who sells securities must be registered to do so. Financial professionals can be checked out on the Central Registration Depository (CRD) Go to for link to the CRD database.

7 Every year Montanans lose millions with a high number of victims being cheated out of their life savings and retirements. Nationally billions are lost every year to investment fraud and scams. These scams touch both the rich and poor; the sophisticated and the unsophisticated; the timid, the greedy and the elderly.



10 A “pyramid scheme” is an illegal multi-level marketing program where the product (if there is a product) is only of secondary importance Definition - § 30-10-324(6)(a) What is it? Pyramid schemes promise big returns in a short amount of time for doing nothing but handing over money and recruiting others to do the same.

11 Money coming in from new recruits is used to pay off early investors For each person that they recruit, they receive money, gifts, or bonuses. The new recruit then makes an initial investment to get their right to recruit How does it work? Victims make an initial investment, which gives them the right to recruit others

12 A vast majority of participants in a pyramid scheme lose all or a high percentage of their money. The End Result A pyramid scheme is impossible to maintain and eventually the pyramid will collapse. The scheme gets too big and the promoter cannot raise enough money to pay earlier investors The promoter of a pyramid scheme can get fines up to $100,000 and 10 years in jail. § 30-10-325(2)

13 Impossible to Sustain 6 1 2 5 3 4 6 9 8 7 10 11 13 12 36 216 1,296 7,776 46,656 279,936 1,679,616 10,077,696 60,466,176 362,797,056 2,176,782,336 13,060,694,016 More than the U.S. Population More than the World Population More than Montana’s Population


15 “Ponzi Scheme” is named for Charles Ponzi, an Italian immigrant who made millions in the 1920’s. What is it? Ponzi schemes differ from Pyramid schemes in that they involve a single promoter/company, unlike the Pyramids hierarchical structure. “Rob Peter to pay Paul” is the principle of the scheme. Definition §30-10-324(6)(b) Ponzi schemes generally involve a promoter who makes false claims about how the money is being made.

16 Promoter sits back and allows investors to find other victims. Greed feeds the scam. Promoter pays big returns to early investors using the money from later investors to help make scam seem legitimate. Statements are sent out, showing how well the company is doing. Early investors also spread the word. How does it work? Victims make an investment, with the promise of a high interest return on their money

17 Early investors will make big gains but later investors will lose everything. Most of the time, the promoter will have already disappeared with a lot of the investments before the scam collapses. The End Result Eventually, the promoter runs out of investors. The scheme collapses as investors demand their money and there aren't new investments to pay them with. The promoter of a Ponzi scheme can get fines up to $100,000 and 10 years in jail.


19 A variation of the “pyramid scheme” What is it? Also known by names such as: The Original Dinner Party, Friends Helping Friends, Airplane Club, the Ya-Ya Girls, Circle of Friends, Women empowering Women and Chain Letter Variations of the Gifting club offer a product to incoming recruits in exchange for money and then the new recruit has the right to sell the products to someone else and thereby recruit another person into the scheme.

20 A variation has members selling a product and they turn over the profit of their first sale to the person that recruited them. Investors recruit new people into the “club.” As new recruits are enrolled, the person at the top of the pyramid receives their “gift” and leaves the scam, so everyone moves up the pyramid and “closer to their gift” How does it work? Victims are told that the cash they invest is a gift, not taxable, and that this makes the scheme legal. Some clubs require members to sign a form stating the money is an unconditional gift.

21 A vast majority of participants in a gifting circle never see their big payoff, instead they lose all the money that they paid into the club to enrich a few members The End Result Gifting Clubs are pyramid schemes. They must continually recruit ever-increasing numbers of new members to survive. When the club fails to recruit, it collapses. Or law enforcement ends the illegal activity The promoter of a Gifting scheme can get fines up to $100,000 and 10 years in jail.


23 A scam that targets a specific group. Often the targets are religious, ethnic, or professional groups. What is it? The swindler takes advantage of the tight knit structure of the group. The criminal often makes comments that convey the basic message of “you can trust me, I’m like you.” No specific definition for this crime but falls under § 30-10-301(1)

24 Group leaders are the most often targeted. Criminals will ensure that the leader receives a big payoff from the scam because the leader will begin to spread the word and entice group members to become involved in the scam. The scam may be based on dire predictions of the future and the need to prepare for an emergency or disaster. How does it work? Affinity fraud often works with a pyramid scam, a gifting circle is especially prevalent.

25 Many groups lose membership and even become defunct after a case of affinity fraud in the group. The End Result Victims of affinity fraud rarely recoup their financial damages. Emotional damage is often more excruciating as victims have been scammed by a person that they trusted. The perpetrator of Affinity fraud can get a fine of $5,000, 10 years or both - § 30-10-306(1)


27 Mining/Precious Metals What is it? Oil and Gas Offshore Investments Promissory Notes Definition - § 30-10-202 Penalty - § 30-10-306(1)

28 The criminal avoids providing any written materials about the investment. Swindlers will often use emotion instead of facts to sway investors. Spot the Scam Terms like “investment of a lifetime” and “high return with low risk” are used. People who sell investments must be licensed in the state of Montana to do so. Check their license

29 Usually involves a claim of finding an “old mine,” a untapped oil/gas resource,” or a “stockpile of gems,” Investors are warned that secrecy is key to the profits. Mining/Precious Metals The lure of Gold, silver, precious metals, and gems is the age-old ally of a criminal trying to persuade investors. People perceive an investment in “tangible” things, like gold and silver as safer investing. Huge returns on the investment Short period of turnaround and a “sure thing” investment are promised.

30 Investors are told that they can avoid taxes and their money will grow faster and have a higher return. Offshore Investment Chronic in the internet era Swindlers will normally employ a shell company off shore but the investments rarely stay within the shell company for very long. Definition falls under § 30-10-301(1) Frequently comes with some type of credit card or ATM card. Penalty - § 30-10-306 (1)

31 Criminals will try to persuade a legitimately licensed/registered producer or other professional to sell the notes for them. Promissory Notes Definition - § 30-10-202 Sounds Simple and Safe. Investors are promised very high, even double digit returns. The notes are backed up by an insurance company that is offshore. Penalty- § 30-10-306 (1)


33 Statement shows unauthorized activity Suspicious Activities Excessive trading and/or Churning No action is taken after talking to a manager or compliance department Broker tells investor to make checks out to a different entity or firm Investor is put into products not associated with broker or firm Reporting § 30-10-310(1) Penalty § 30-10-306(1)

34 Keep in mind that often times they will not see themselves as a victim Law Enforcement Action Interview the victim If the victim has not sent in or transferred money attempt to talk them out of sending the money Take a detailed report and gather all documentation. If needed try to locate a family member to sit in while you talk with the victim Contact the State Auditor’s Office Securities Department 1- 800-332-6148 or 406-444-2040

35 Financial Crimes Training

36 For more information or assistance, please call (406) 444-2040 or toll-free (800) 332 - 6148 State Auditor John Morrison

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