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Protecting Your Small Business or Personal Investment: The Features of Fraud to Look Out For

Large corporate enterprises have many protections and security procedures in place to guard against fraud (by both outsiders and insiders), as well as the balance sheet to tolerate occasional missteps. Small businesses and individual investors do not have the luxury of such protection, which is what often makes them more accessible targets for a certain breed of scammer. Recognizing the signs of fraud is important to help protect you from getting into a bad situation or losing money due to fraud. 

Overly Aggressive Salesmanship

All companies need to market their goods or services so that others know they exist and what is available. But there is a distinct line between ordinary sales practices and someone working a little too hard to “earn” your money. Aggressive tactics like repeatedly calling or sending emails, showing up in person, pressuring you to purchase or subscribe to an investment immediately due to “limited” availability, trying to get you to focus on only the monthly or installment payment, or what seems to be an inordinate focus on criticizing others when a potential flaw is brought to light are often telltale indicators of either a poor product or service, or a full-blown investment scam in the making.

Good products and services speak for themselves, making an honest salesperson’s job easy by making sure those who could use them are aware of their availability and even facilitating free trials at the start. Be patient, thorough as you can, and avoid impulse purchases. If it starts to feel like you are dealing with a “used car salesman,” then that is the time to become even more vigilant before signing on the dotted line or turning over any your small business’s money.

Relying on Jargon or “Complicated” Details

Some deceptive purveyors attempt to overwhelm potential victims with technical talk and detail, or flood them with dense materials to either try and impress or confuse a prospective client into believing what is being promoted must be a great deal. The natural tendency of many people when they are faced with something which they do not understand is to ask less questions for fear of appearing weaker, and then they start to rely more on the charisma of the salesperson or others in cahoots who vouch for them. Relationships are vital in business, but that should never take the place of cautious decision-making.

Honest brokers, on the other hand, will do their best to answer every question in a logical and easily understood manner that can be backed up by detail as necessary and, if the answer is not known or readily available, they will tell you that without qualm and work to find an answer. In other words, honest salespeople have nothing to hide. If what you typically hear in response to a question tends to be something along the lines of “well, that’s just too complicated for you to understand,” or your concerns always seem to get brushed off with a shift to other topics, then the reason may be because your questions are entirely valid and there is a real weakness the seller wishes to conceal, mislead you about, or just avoid answering directly at all costs.

A Lack of Background Information

Another warning of fraud in the making can be the opposite of overly aggressive sales tactics or being flooded with too much detail: i.e., a seller with sleek-looking materials or a cool website that does not provide any real information about the product, service, or even themselves. A website that does not identify the entity or provide easily verifiable contact information should be an immediate red flag.

It is not hard these days to do a little bit of internet sleuthing to check up on an individual or business, which should be the first step in any new interaction you are unsure about. For example, the Texas State Comptroller’s website has an “entity search” function that allows you to quickly see whether a business actually exists and is authorized to do business in Texas, and you can find out the identity of their registered agent for service of legal process at the same time. A business that has an individual listed as their official registered agent—especially if it is the same person trying to sell you the product or service—or that uses a home address for service of process (which you can find out by checking the address in Google Maps or through online county property records) is a good reason to be more cautious. It may very well be a legitimate home-based business, or otherwise just a shell company set up by an individual fraudster to give themselves the outward appearance of legitimacy.

Another tip for doing your own quick diligence online is reviewing the Better Business Bureau (BBB) profile of the questionable person or entity to see how many complaints have been made in the past and what those involved. A BBB profile with a lot of complaints—even if most are resolved—can be a symptom of significant problems. Google, Yelp, Amazon, and other types of review platforms (or those on the business’s own website) are less useful because there are ways for a bad business to suppress and remove unfavorable reviews or even make up favorable reviews that skew the results. The BBB is less easily fooled as it has been in the business of ratings for a very long time.

Continuous Excuses or Delay After Entering Into the Deal

Those who do fall victim to a fraudulent sale, investment, project, or other enterprise can often tell you there were indications fairly early on that got overlooked or discounted at a point when the loss still could have been minimized.

One of those routinely reported is when the salesperson who worked so hard to get your signature or money suddenly disappears soon after and becomes nearly impossible to get ahold of thereafter. When a response is received, it often is just one of continuous excuse and apology for the delay with no follow through even then, all leading only to being strung along or attempts to distract you from discovering the fraud before it is fully implemented and completed.

Soon as the level of customer service drops, that is a point where you should indeed be wary and suspicious. Unfortunately many end up giving more leeway at that time in hoping for the best, yet early on is exactly when you should be pressing the hardest and demanding complete information, explanations, and responses. Half-truths can be more harmful than outright fraud in that way. Any business that spends a disproportionate amount of effort getting customers or clients in the door compared to ongoing service after is a strong signal of something fishy in the background.

Do Your Diligence

The types and range of fraud that can occur are nearly limitless. The important thing to keep in mind before any significant purchase, commitment, or investment is to try and get as much information as possible which can be independently verified. Basic due diligence through internet searching described above can help you sniff out and avoid complete scams early on. But many unethical practices start off as legitimate only to gradually morph into the fraudulent enterprises that they become. That is often the story behind any major investment scam or Ponzi scheme.

Some of the more common areas ripe for fraud include:

  • Investment Scams – Investment or securities fraud occurs when a promoter, broker, or developer creates the illusion of a promising investment opportunity with a high likelihood of stable return. It is fairly easy for scammers to create a convincing online presence or fabricated but realistic-sounding stats and financials, while hard in equal measure for an individual investor (even an accredited investor) to vet such information without having to expend significant sums on an independent auditor or investigator. It is important to at least scrutinize any opportunities that involve you paying money in return for expectations of above-market returns, especially when the enterprise is based on the skill or management of the promoter herself. The old adage that “something which seems too good to be true, probably is too good to be true,” exists for a sound reason: it is based on long experience. That type of fraud is nearly timeless as the human experience itself and will always exist.
  • Real Estate Fraud – In Texas, there are statutory requirements applicable to residential real estate transactions intended to help make the purchase of a home (the most substantial purchase most individuals will make in their entire life) more fair and based on information known to both sides. That does not stop some sellers from trying to subtly leave out things they do not want to disclose in the hopes it may never be discovered. Commercial real estate transactions are not subject to the same requirements because buyers in that area are expected to be able to better protect themselves from fraud. That is mostly true in practice for well-resourced entities that can afford to conduct extensive due diligence and evaluation, but not so for a small business or individual property investor. It is important at a minimum to, if possible, have qualified professionals inspect (who can be held to account if they fail to do their job), but also make pointed inquiries to the other side to get disclosures. A commercial seller is not necessarily obligated to divulge all that they know, but refusing to answer is alone valuable information itself and anything provided by a seller that later turns out to be false or misleading can then be used to your benefit (and always best to further incorporate such disclosures into the final written contract too).
  • Advertising Fraud – Have you ever received a brochure or seen an advertisement in a trade journal or circular promoting a product, service, land, or some opportunity that, after you looked into the details, did not fairly match up to reality? Of course you have. Everyone has experienced that at one time or another. Advertising by its nature is necessarily a bit deceptive in that way as it focuses on only the best aspects and is meant to draw attention to that. Perhaps it is unfair to waste people’s time who respond to an advertisement only to find out the truth at that point before entering into a transaction, but it is accepted somewhat as a necessary incident of legitimate commerce. When someone is unfairly induced into a purchase without the truth ever being disclosed though, or the advertisement turns out to be directly false, then one is certainly defrauded in that way. Diligence is always importance, but sometimes there is not much you can due when false advertising involves retail products that are purchase with no opportunity to interact with the manufacturer. You may be limited then to only trying to find reviews from other customers or generally sticking to proven brands, but it is easier to prove fraud in that instance too since one cannot deny what was put in print or broadcasted out to the world.

Speak With a Dallas-Fort Worth Commercial Litigation Attorney if You Were Defrauded

As a litigation attorney who has handled all kinds of fraud cases in a wide variety of industries, from larger consumer purchases (home, auto, and otherwise) to unraveling deceptive oil and gas investment schemes and breach of representations and warranty in business sales and corporate acquisitions, Wright Commercial Litigation’s principal attorney knows well the ways in which fraud occurs and can help you recognize the signs. In general, a number of other old adages apply in that regard, such as “always trust your gut – it’s usually right” and “where there is smoke there is bound to be fire.”

Contact the firm to request an initial consultation and find out if your fraud case is one that can be taken on a partial contingency or reduced fee hybrid basis.