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Bill McCready
Scams and Shams When shouldn't you take the money?
Opportunities for unscrupulous companies to offer money at
seemingly amazing low rates are at an all time high.
If your the bank won't lend it to you, and local investors won't
give it a second look, ask yourself this question before you
commit to anything. "Why would someone from out of state or out
of the country even consider investing in my small startup
company, when no one else will even consider it?"
Here are a few of the scams, shams and flimflams encountered by
entrepreneurs over the last twenty years. You can check some of
the latest ones out by visiting the Security and Exchange
Commission (SEC) website http://www.sec.gov/investor/alerts.shtml
Secret Foreign Investors
Usually a group from an economic hot spot that wants to get its
money out of an unstable country. Any time you cannot contact
the source directly, be wary. It could be drug money or
government corruption money looking for a way to be laundered,
and an up front finder's fee is usually demanded.
Nigerian Love Letters
A Nigerian national, often a General or petroleum executive "has
discovered an unprocessed or underpaid invoice for $20+
million". The "General" will want to deposit these funds outside
the country into your bank account, and you will receive a 10 %-
30% commission. The catch: They will drain your account as soon
as you give them the transit codes, and you will have no
recourse.
Offshore Companies
"Offshore", or tax haven, companies are often legitimately
maintained in order to shield international assets from
excessive foreign taxes on worldwide assets. U.S. Citizens must
still declare ownership of assets, and will be taxed on those
assets. Because it is not always possible to determine actual
ownership, these companies are often fronts for drug money or
other "not-so-clean" money sources looking for a legitimate
enterprise in which to invest.
100% Startup Loans
100% startup loan programs and loan guarantee programs are just
another up front fee scam. In the U.S., Legitimate banks do not
make startup loans or loan guarantees, and are prevented by
certain federal laws from taking excessive risks. If a company
meets certain debt to equity ratios, and the principals have
adequate collateral, personal guarantees, or an SBA guarantee,
then a loan equal to 30% or less of the capitalization may be
possible.
Cash Only Investors
Cash Only Investors should be a tip off to a money laundering
scheme. Federal banking laws require depositors to declare where
more than $10,000 in cash comes from, and the banks are
obligated to report the same to the IRS. Under U.S. Law, the
company and any affiliated assets may be confiscated if the
money is determined to be from illegal activities.
Summary
Know the source of funds, do not accept money from strangers,
and never ever pay large up front fees for any funding source or
finder. Remember, if it sounds to good to be true, it probably
is!
Be sure to do your due diligence on all sources before agreeing
to accept funding. Your attorney, CPA, or banker to assist you.
Venture Planning Associates, Inc., http://www.ventureplan.com
Tel. 858.457.3434 / efax 425-955-7531
capital@ventureplan.com
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