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 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 also may 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.”