Idaho Department of Finance issues advisory on 'recovery room' scams

Idaho Department of Finance Director Gavin Gee warned victims of fraudulent investment and financial products to be wary of those promising to recover those lost funds.

The "recovery room" scams abound with a ready client list -- people who previously purchased dubious products or dealt with spurious promoters.

Recovery room operations contact these victims and will often confirm what their intended target already knows or suspects -- that they've been the victim of a fraudster. The caller acknowledges that the consumer has been victimized and empathizes with their losses.

The caller then tells the consumer they are pursuing financial recovery from the original fraudster on behalf of many other victims of the fraud. The scammer then solicits the consumer to participate in an efforts to recover their losses or go after the fraudster.

"Such operations almost always morph into an 'advance fee scheme' or 'asset theft attempt' from the previously defrauded consumer," Gee said. "Given their intimate knowledge of the prior fraud, it's not a stretch to imagine that a number of recovery operations are the same people that perpetrated the original financial fraud."

The state finance department has a long history of dealing with investment fraud with officials hearing many horror stories from the victims. Gee outlined a few examples.

* Low-priced stock hangovers -- A few years after losing money in a "pump and dump" scheme, Idaho holders of a now-nearly worthless penny stock were approached with an offer to purchase the shares at prices much higher than the going market rate. Prior paper losses were acknowledged with sympathy, while the caller explained that a European buyer was seeking to acquire publicly traded shares to gain control of the company.

All the Idaho shareholders had to do was provide proof of ownership and account details. Oh... and they were asked to prepay the transfer commission and fees in advance of the completion of the transaction.

* Mexican timeshare interests -- Several state residents and others around the country own fractional timeshare interests in properties located in Mexico. "Cold call" phone solicitors contact these owners with an above-market offer to purchase their property interest, offering to use an escrow company located in Idaho to complete the transaction.

All the timeshare owner had to do was pre-pay property transfer fees before the escrow company disbursed their funds. As it turned out, the escrow company only existed on the internet, and the timeshare sellers were instructed to wire the advance fees across the border into Mexico.

Those that did lost their money, and the property transaction never moved forward.

* One recovery room too fast to the scene -- In recent months, an Idaho investor in a recently purchased private placement security was greeted with a cold call explaining their investment was a fraud with the promise to help them recover their funds. The investor instead contacted the state finance and was able to recover their investment from the original promoter.

The identity and location of the caller was never determined.

* Making up time and money - Some recovery room operators prey on the victim's need to make up for prior losses.

"They acknowledge that you had a bad investment experience, even naming the product and the promoter, and work to impress you with their credentials," Gee said. "They then offer a 'legitimate' product that will help you offset your earlier losses and maybe even make you whole if you commit enough money."

Avoiding fraudulent investment and financial products isn't always easy, and recovery room pitches seem sincere and directed at helping victims, Gee added. However, people should remain skeptical and wary.

The state agency outlined steps people should take to avoid being victimized.

* Ask questions and check out the answers. It's best for people to do some independent research to help know who they are dealing with and where they are located. Most securities transactions are done through registered or regulated entities.

If it's an investment product, contact the state finance department. For other products, people should check with the appropriate regulators to see if they have any information that can help.

* Never pay any advance fees. While there are some legitimate transactions that may require some up-front contributions, they are rare, Gee said. Such requests should come from legitimate and regulated or licensed entities or individuals, such as an attorney whose license can be verified.

"Just because someone says they are legitimate does not mean that they are," Gee said. "Just because they have a nice web page does not mean that they are real. If they are overseas, don't chance it without a thorough and totally independent professional background check."

* Beware of follow-up requests to "save" an investment. Avoid the temptation to send more funds when a problem is suspected.

"Initial promoters and recovery room operators rely on our unwillingness to just write off a bad deal," Gee said. "This makes us susceptible to the threat of losing our entire investment or recovery if we cannot come up with just one more payment to make things turn out right."

When consumers take this bait, they are met with another request for additional funds in the coming days and months, he added.

* Never be afraid to complain. Those who suspect fraud or cannot get a straight answer to investing questions, people shouldn't feel embarrassed or concerned about how others may judge then.

"There are many agencies involved in protecting investors that may be able to help," Gee said. "Perhaps you can save a friend or neighbor from a similar fate just by sharing your experiences."

For more information, call the Idaho Department of Finance at 332-8004 or go online to www.finance.idaho.gov.