Advance fee frauds ask investors to pay a fee up front—in advance of receiving any proceeds, money, stock, or warrants—in order for the deal to go through. The advance payment may be described as a fee, tax, commission, or incidental expense that will be repaid later.
Some advance fee schemes target investors who already purchased underperforming securities and will offer to sell those securities if an advance fee is paid—or target investors who have already lost money in investment schemes. Fraudsters often direct investors to wire advance fees to escrow agents or lawyers to give investors comfort and to lend an air of legitimacy to their schemes. Fraudsters may also try to fool investors with official-sounding websites and e-mail addresses.
Advance fee frauds may involve the sale of products or services, the offering of investments, lottery winnings, found money, or many other so-called opportunities. Fraudsters carrying out advance fee schemes may:
• Offer common financial instruments such as bank guarantees, old government or corporate bonds, medium or long term notes, stand-by letters of credit, blocked funds programs, fresh cut or seasoned paper, and proofs of funds;
• Offer to find financing arrangements for clients who pay a finder’s fee in advance; or
• Pose as legitimate U.S. brokers or firms and offer to help investors recover their stock market losses by exchanging worthless stock—but requiring investors to pay an upfront security deposit or post an insurance or performance bond.
In Texas, advance fee frauds are considered illegal and are addressed under various state and federal laws. The Texas Securities Act, along with federal securities laws, prohibits fraudulent activities related to the sale of securities, including schemes that require investors to pay upfront fees with the promise of future returns or services. The Texas Deceptive Trade Practices-Consumer Protection Act (DTPA) also provides protection against fraudulent business practices, which can include advance fee schemes. Additionally, the Texas Penal Code may classify certain advance fee frauds as theft or fraud, both of which are criminal offenses. Victims of such schemes can file a complaint with the Texas State Securities Board or the Federal Trade Commission (FTC). It is important for investors to be cautious and to verify the legitimacy of any investment opportunity, especially those requiring advance fees, and to consult with an attorney if they suspect fraud.
