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more time to evade the authorities and victimize Investment schemes
others. Contacting a news source might make other
victims aware of a local scam but does not alert or
involve authorities, who can fully investigate and have been known to be
charge fraudsters.
It is important to determine the right authorities
with whom to file a complaint. The local police are affinity-focused, seeking
unlikely to be of immediate assistance, as investi-
gating potential investment fraud is not typically
within the jurisdiction of local law enforcement. In to exploit a shared kinship
the United States, for example, the Federal Trade
Commission (FTC) provides a place to report
anything that people think might be a fraud, scam, such as nationality,
or bad business practice (ReportFraud.ftc.gov). The
information is entered into the FTC’s Consumer
Sentinel database, which is used by federal and state
law enforcement across the country to fight fraud ethnicity, or religion.
and educate the public. Reports make a difference
and can help law enforcement uncover problems;
the FTC even allows for reports to be filed on
behalf of someone else. becomes a pyramid scheme when it pays an indi-
Those who live outside the United States and vidual solely or primarily based on the recruitment
who want to report an international scam can use of new people, rather than on sales to customers.
econsumer.gov to file a report, which will then The addition of people to the organization gener-
be included in the FTC’s Consumer Sentinel ates the income, not the product being sold.
database. Econsumer.gov is a partnership of more Pyramid schemes might purport to be selling a
than 40 consumer protection agencies around the product, but the entire idea is simply to enroll new
world. The system helps identify trends and prevent victims into the scheme. The scheme might pressure
international scams, and is available in English, people to buy more inventory than they can sell,
Spanish, French, German, Korean, Japanese, Polish, invest in training sessions and conferences, and
Portuguese, and Turkish. tempt victims with luxury rewards for meeting lofty
goals. However, the goal of the scam is to gather
5. (b) An individual in an MLM business earns more people to give more money “up” the pyramid
commissions on the products they directly sell and to the top.
on the sales of distributors “under” them in the
organization’s sales structure. Those considered SCORING KEY
“under” the distributor include not only individu- 0–2 correct: If you answered fewer than three
als that the person has recruited but also any of questions correctly, you may want to increase
the individuals recruited by those people. In other your knowledge of investment fraud and red
words, the original distributor will earn commis- flag indicators. Keep learning about potential
sions on their own sales, any recruited distributors’ scams to ensure you can protect yourself, your
sales, and the sales of any other recruits under clients, and others from the harms these schemes
those distributors. However, an MLM business can cause.
3–4 correct: If you answered three or four ques-
tions correctly, you’re on the right track. Continue
AICPA RESOURCES to build your knowledge about how to look for
potential investment fraud and scams.
Articles 5 correct: If you answered all five questions
“What’s Your Fraud IQ?,” JofA, Nov. 2019 correctly, congratulations! Your thorough knowl-
edge will go a long way in protecting your clients’
“What’s Your Fraud IQ?,” JofA, June 2019
financial assets, as well as your loved ones and
“What’s Your Fraud IQ?,” JofA, July 2018 yourself from investment scams. Keep up the good
work. ■

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