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If it seems too good to be true, it might be fraud

A television series where you don't want to be eligible for an interview is "American Greed," a CNBC program that depicts frauds where people lose thousands of dollars by investing with scam artists.

Many fraudsters described in the series have been sentenced to prison. But investors often get back nothing or just pennies on the dollars they put into what sounded like a good deal.

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Fraud can be a civil or criminal offense. Generally, criminal fraud requires that the person committing the fraud have criminal intent. Civil fraud generally applies to bad faith situations, where penalties are intended to punish the fraudster and restore victims to the position they were in before the fraud began.

Maryland criminal law has nine subtitles devoted to frauds and similar crimes, from passing bad checks to using undue influence to obtain the property of a vulnerable adult, a person who lacks the capacity to provide for his daily needs.

Frauds under state criminal fraud law are generally misdemeanors rather than felonies, which means lighter sentences. A corporate officer who falsely represents the corporation's assets or liabilities to the public, for example, may be sentenced to up to three years in prison and/or fined up to $10,000.

The Maryland Insurance Administration is authorized to issue civil insurance fraud orders. The Administration reports it has sanctioned 104 individuals for insurance fraud, assessing $371,750 in penalties and ordering payment of $126,230 in restitution.

The U.S. Securities and Exchange Commission (www.sec.gov) brings hundreds of civil enforcement actions each year for violations such as insider trading, accounting fraud or providing false or misleading information about securities.

How can you protect yourself? It can be difficult. Many "American Greed" victims had researched investment companies' financial statements before forking over retirement savings or other assets. Financial statements may look sound, if the fraudsters plugged in numbers that never existed. Similarly, quarterly and annual reports may be falsified.

If investors have the bad luck to invest in a Ponzi scheme, it can seem legitimate and pay off for several years. Ponzi schemes use money from new investors to pay off earlier investors. Often, investment money is also diverted to provide a lavish lifestyle for the Ponzi scheme executives. Similarly, pyramid scheme operators make money solely by recruiting new investors. They promise a high rate of return, but no genuine product is ever sold.

The new investors' money is not going into stocks or real estate or other legitimate investments. When the fraudster runs out of new investors, he cannot continue to pay earlier investors. The company collapses.

The SEC warns that promises of very high yields on investments should be investigated carefully (www.investor.gov). Investment opportunities promising 30 or 40 percent annual returns at no risk to the investor are "likely a fraud," the SEC warns.

The Treasury Department website www.treasurydirect.gov offers the tried-but-true advice that if an offer to rent or lease a U.S. security for a certain period seems to be too good to be true, it probably is.

Donna Engle is a retired Westminster attorney. Reach her with questions or feedback at 410-840-2354 or denglelaw@gmail.com. Her column, which provides legal information but not legal advice, appears on the second and fourth Sunday each month in Life & Times.

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