David Lerner Associates: Watch Out For the Grandparent Scam

In this scam, fraudsters call seniors on the phone impersonating one of their grandchildren and frantically claiming to be in some kind of trouble — usually a car accident, arrest, lost wallet or robbery, often in a foreign country. Then they ask their supposed grandparents to send them money, usually via a wire transfer, to help them get out of their bind.

According to the Federal Trade Commission, this scam is growing more and more common. The FTC recorded 743 incidences of the grandparent scam in 2009 and another 40,000 since 2010, also noting that there are probably many more cases that go unreported. The exact amount of losses due to the scam is unknown, but estimates are in the tens of millions of dollars.

Why It’s Effective

While it might sound like it would be easy to recognize this scam, some seniors who have been victims say this isn’t necessarily the case. Professional fraudsters are able to disguise their voices, usually claiming that their nose or mouth is injured if the grandparent asks why their voice sounds funny. And the fraudsters beg them not to tell their supposed parents in order to avoid punishment or embarrassment.

Additional follow-up calls are also sometimes made by other fraudsters posing as attorneys, bail bondsmen or doctors to help make everything sound even more legitimate. Some fraudsters are even able to profile victims by searching social networking sites to learn little details that only a family member would know.

In one case, for example, the fraudster knew that the grandson he was impersonating was the only grandchild who called his grandfather “Gramps.” This is what fooled him, the victim said. When you add in the emotional factor — the fact that most grandparents love their grandkids dearly and want to do whatever they can to help them in a supposed desperate situation — you can start to see why this scam is so effective.

Guard Yourself

Major money transfer service providers Western Union and MoneyGram are working with law enforcement officials to try to prevent this scam. For example, transfer forms specifically state that users should not wire money to grandchildren or any other family members for unconfirmed emergencies. They are also training their employees to spot this kind of fraud and giving them the authority to put transactions on hold or cancel them if they are suspicious.

But once a money transfer goes through and the funds are picked up by the fraudster, it’s usually too late to do anything about it. So the FTC is urging all seniors to be aware of this scam and take steps to avoid becoming a victim. These steps include the following:

• Be alert and suspicious, not emotional. It’s easy to get emotional if you receive a call like this, but use some healthy skepticism and suspicion.
• Call another family member — preferably, your grandchild’s parents — to verify the supposed emergency.
• Create a secret code to be used by all family members in the event of a true emergency.
• Urge your kids and grandkids to be careful about how much personal information they share on social media sites such as their vacation plans and whereabouts. This is a prime source of useful information for fraudsters.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC.