I investigate financial crimes, schemes to defraud, tax schemes, offshore asset-management "strategies," money laundering, etc., domestically and internationally. During 2012, I saw more scams related to loan funding, and project financing, than I have seen during the prior 15 years combined.
Venture capital has become very hard to come by, here in the United States and abroad. Whatever else one might say about con artists, they are responsive to changes in the marketplace and quick to capitalize on the opportunities those changes present.
As conventional sources of financing have dried up, alternative funding options have become the advance-fee-scheme du jour as a mechanism of direct financial fraud and indirect fraud via identity theft.
The criminal element advertises these loan-funding and project-financing schemes everywhere, especially through business networking platforms on the Internet. In many cases, these schemes are promulgated through a multilevel-marketing model where legitimate, credible people believe they are representing legitimate business entities, offering viable funding solutions. I have had several cases where the victims of these schemes were introduced to the fraudulent offerings by well-meaning friends and professional associates.
The most common version of these fraudulent schemes is the least damaging. Potential borrowers are required to pay the loan broker a fee for their services in advance, and these fees tend to range from about $5,000 to as much as $50,000, depending upon the amount of funding required. After completing voluminous paperwork, and providing all the sensitive personal and financial information that is typically associated with the lending process, potential borrowers are eventually told that they have "qualified," pending the formalities associated with due diligence, involving due-diligence fees that they are required to provide.
Encapsulated within a paragraph or two, the scheme seems obvious, but, in my experience, the contractor seeking to fund a $20 million project will pay a broker whom they believe in a fee for services in advance, especially if he believes he is dealing with a licensed professional. Further, having paid that fee, completed all the paperwork and having ridden the emotional roller coaster of (nonexistent) submissions and rejections with their trusted broker who is working so hard for them, they will pay the due-diligence fee, once they are finally advised that they have been tentatively qualified for the loan. In the end, for reasons that are never made clear, the funding does not come through.
The more sinister version of this scheme generally involves "proof of personal funding," often amounting to 10 to 20 percent of the funding sought. The scam develops as previously described, but the potential borrower is told that he must provide proof that he has "skin in the game." In one of the cases profiled on my website, the victim was required to deposit $400,000 into an escrow account because, as he was told, "Nobody will lend $4 million dollars to a deadbeat."
In some cases I have seen, neither the escrow account, nor the escrow agent, are real; the funds were transferred directly to the fraudster.
In the case involving the $400,000 fraud, it was much more complicated. The victim was persuaded to authorize the release of his funds, upon receipt by the legitimate escrow company of a conditional letter of guarantee from Wells Fargo. When the escrow account manager received the conditional letter of guarantee, the fraudster asked her if there was a phone number on the letter, which, of course, there was. The fraudster asked that she call the number and verify the legitimacy of the letter, which she did, and then she dutifully reported to the victim, and the fraudster, that she had independently verified the legitimacy of the letter, which ultimately turned out to be fake.
In many cases, fraudsters advertise funding with "no advance fees."
In one case the fraudster made it perfectly clear in the contract that there were no advance fees, but, in the very next sentence, went on to specify that the $150,000 payment required of the borrower was to be tendered prior to loan funding — an advance fee by definition.
Sometimes, these schemes are remarkably simple to expose. Think "The Beverly Hillbillies" and remember the dedicated banker, Milburn Drysdale. The show was a comedy, but the banking relationship is a reality. Show me an individual who really has tens (they often claim hundreds) of millions of dollars at their disposal, and I'll show you a guy with a personal banker, from a reputable financial institution, on speed dial who is willing and, in fact, anxious to confirm the legitimacy of his client.
When dealing with the truly "amateur hour" con artists from the Ivory Coast, it can be as simple as email. In a local case, my client was dealing with a woman claiming to be an "independent investor" who provided a Florida address and phone number. He became suspicious when a significant advance fee was required and contacted me. The emails he received traced to a person in Lagos, Nigeria.
Ironically, in my most recent international case, my client was a Nigerian businessman pursuing project funding through a broker who provided an address in the Washington metro area, and a phone number with a 202 area code. The emails he received traced to Ghana, his African neighbor.
Most states have enacted laws to protect potential borrowers from this sort of fraud. Some states require that any fees advanced to loan brokers be deposited into an interest-bearing escrow account, and refunded in the event that the loan does not close. Other states, like Florida, do not allow loan brokers to collect advance fees at all. Florida Statute 687.14, entitled "Loan Brokers; Prohibited Acts," provides that, "No loan broker shall assess or collect an advance fee from a borrower to provide services as a loan broker."
In the arcane world of statutory construction, it doesn't get much more straightforward than that.
There are several articles in the case studies section of my website (fraudsandscams.com) profiling these funding schemes, complete with copies of the underlying documents.