“Hacker attacks on brokerage accounts make sense from a criminal’s point of view. Brokerage accounts tend to have higher balances, making them worthwhile targets. And while a six-figure transfer out of a checking account would surely trigger fraud pattern detection software, large transfers from brokerage accounts are fairly standard.”

The problem for you is that there is a different level of protection for brokerage accounts by law than for your bank account or credit card:

“Both credit card transactions and electronic account transfers, such as online banking payments, are governed by Federal Reserve regulations that strictly limit consumers’ losses from theft. Consumers who report credit card fraud are only liable for $50; liability for fraudulent checking account transfers is capped at $500 if the consumer reports the theft within 60 days. Refunds for checking account thefts must generally be issued within 10 days.

The regulations are designed to boost confidence in the systems. But the Federal Reserve doesn’t regulate investment firms, and the Securities and Exchange Commission doesn’t mandate any similar protections for brokerage accounts.”

The big question for you is what you can do about it. Here are a few suggestions:

1) Figure out both the policy of your investment firm on refunds and whether they have any insurance. Charles Schwab and E-trade have good guarantees according to the article. I have accounts with Fidelity and Vanguard and went to check out their web sites for information on it. Fidelity doesn’t say anything about insuring the accounts, but they have a “Customer Protection Guarantee” stating that:

“We will reimburse your Fidelity account for any losses due to unauthorized activity.”

The only problem is that the fine print gives them quite a bit more leeway. There are some vague statements about it being “through no fault of your own” and a statement that “it also does not cover unauthorized activities resulting from a breach of security in an employer or plan sponsor’s systems.”

So it’s a blanket guarantee blaring in bold at the top, but some inconsistent statements in the fine print that you could get caught up in. What if your password gets stolen from your computer by spyware? Are you at fault? And how are you supposed to control your employer’s computer security?

On Vanguard’s site I couldn’t find anything – no mention of insurance coverage for this, and while they had some advice about security precautions, there wasn’t any indication at all that they’d reimburse you. I’ve got an e-mail in to them to see what they say.

2) Update your computer’s anti-spyware software and anti-virus software. Spyware, for the non-geeks, is a program installed without your permission that can monitor what you’re doing online – things like typing in a brokerage password. It is often installed without you ever seeing anything by web sites you visit. A virus can also take control of your computer to send out information you’ve typed in to a hacker. For spyware, a good free program is AdAware, which you can download for free here. For viruses, Norton is probably the best (or at least a very good, trusted program). You can get it here – they sell an Anti-Virus program as well as what is called a “Firewall,” which is just a way to stop people from accessing your computer over the Internet without permission. It’s not free, but it’s pretty cheap.

3) Don’t log into your brokerage from a computer you don’t know is secure. This means no computers that other people can use (libraries, Internet cafes, etc.). It might mean the computers at your office, too, depending on where you work and how much you trust the security.

4) Write your passwords down on paper – not in a document on your computer. Those are much easier to steal and could be grabbed by anyone who gets access to it.

5) Don’t EVER log into any account from a web page you accessed by e-mail. ALWAYS go to your browser and then type in the address yourself. I don’t care if the e-mail looks legitimate – this is a very common scam, and you should never follow a link from an e-mail to a site where you’re going to have to type in a password. What people will do is fake a web site and send you a fake e-mail that looks like it is your monthly statement or that says you have a problem with your account. When you click to view it, you are taken to a web site whose sole purpose is to find out your password when you type it in.

6) If you’ve got a lot of money and aren’t satisfied with your brokerage’s reimbursement policy, call them up and ask them to confirm any withdrawals by phone with you. If you don’t think you’ll be taking any money out in the near future (or at least not regularly), ask them to restrict your ability to do so without confirmation. Not every brokerage may be able to do this, but it’s worth a try.

7) Don’t ever give anyone your password. This should be common sense – but don’t do it.

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ID-stealing bosses are the exception, but they are out there, says Linda Foley, executive director of the Identity Theft Resource Center, a leading nonprofit that provides information and support for fraud victims.

In fact, Foley started the center in 1999 after her boss used information on Foley’s tax forms to apply for credit cards and a cell phone. And earlier this year a judge in upstate New York sentenced a computer entrepreneur to seven years in jail for tax fraud and stealing the IDs of employees and friends.

That’s just one more thing to worry about, and there’s not much you can do because no one is going to even be able to employ you without a lot of personal information to deal with the IRS. I’d rely on services that give you constant updates on your credit reports if you’re worried about this one. It’s a good idea for anyone, and it’s only about $50 a year. Just be aware that if you see a request for a credit card or a loan on your report, even if it has something to do with your company, you should still adhere to the rule that if you didn’t request it, something is wrong.

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The article also points out this important warning sign for identity theft:

While your child may receive pre-approved credit card offers, you should be on the lookout for other signs that someone is mis-using your child’s identity. Look for unusual marketing solicitations. That means if your six year old is getting Harley Davidson catalogues it’s time to do a credit check. Other red flags: your kid is getting notices of traffic violations or bills sent in their name. 

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I’m not sure you’ll actually find that many scams for products you’re using on a day-to-day basis – I found a few, but some were warnings for things I’d probably never look into anyway. But the reason I think it’s really useful is because these tricks often come in categories. I may not be buying a Chrysler – but it’s useful to know that when a car company has something that sounds really great like a 30 day return period, it might just be hype. And it’s also useful to know that with various kitchen products, they will try to trick you by using different measurements you might not be familiar with – or refering to “uses” when they just reduce the scoop size, etc.

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No, many of the modern scams are masquerading as investment opportunities that look legitimate to the uninformed. In fact, far from being something new, a lot of them are just variations of an old and clever scam: the Ponzi scheme. This scam gets its name from a guy named Charles Ponzi who stole about $15 million from various people over short periods in Boston in the 1920’s. How did he convince people to give him $15 million dollars? He promised them that he’d double their money in 90 days – and he did. For the first people that invested, that is. What he was doing was taking money from a small group of people, promising to “invest” it, and then getting more people to invest for the next 90 days. He then used their money to pay off the first people, who doubled their money – and then wanted to “invest” a bunch more, along with all their friends. The Ponzi scheme gains credibility because for awhile, it actually does give people huge returns. But once a certain amount of money gets into the system, the person running the scheme disappears – taking all the money “invested” at that time with them.

So of course no one would fall for this today? Sadly, these schemes are thriving. And the two largest variations are called High Yield Investment Programs (HYIP’s) and Autosurfing. A HYIP is generally based on the claim that there is some sort of investment opportunity generally unknown to the public that the program will let you in on for huge returns. Many of them claim that there is a “secret banking system” where the program will place your money in a bank account and be able to trade it, for free, with no risk. Most of them use complicated sounding language, referring to obscure aspects of the banking system – they may claim to deal in letters of credit or various kinds of banking notes. The FBI has issued a warning stating that these schemes are illegal and that there is no secret banking system which people can use to make sudden profits.

Autosurfing is something slightly different, but it is plainly an illegal scam, and the government is cracking down on these companies. The schemes work by pretending that they are a legitimate advertising company. You can read a breakdown of the tricks used by one company here, but in essence they claim that if you put up a certain amount of money, they will put a program into your Internet browser allowing you to view ads while surfing the Internet. They claim to give you a cut of the advertising revenue, but you have to “invest” to be allowed to join, and you get a “return” only so long as you surf the Internet for a certain amount of time each day. This has at least a veneer of legitimacy – in the Dot Com boom days, there were a few companies that tried to use this as a business model. They went bankrupt because it doesn’t work – paying people to pretend to look at ads isn’t very lucrative for advertisers. But the failed business has become a successful scam because it sounds like something that COULD be true.

So how do you protect yourself from these kinds of scams? First of all, in looking around, I noticed that most people running the schemes aren’t even trying to hide what they are. Most even call themselves a HYIP or an autosurfing program – which makes it more than a little disturbing that people still put money into them. For the ones that try to hide it, I found a good list of tips on avoiding these things here. You shouldn’t really need them – if someone over the Internet offers to give you a huge return for only a small investment, they are scamming you. You shouldn’t be sitting around trying to figure out whether it could be real or not. Once you’ve gotten to that point, you’re a sucker who’s taken the bait. My single rule of thumb for whether an “investment” is a scam or not is this:

Can you call up a broker at Merrill Lynch, Fidelity, E-Trade, or some other famous investment broker and invest in it?

If you can’t, it’s definitely a scam. People who have real investments that are able to make real money will do one of two things: if they can, they’ll get it listed on some sort of exchange, in which case you can trade it using a reputable investment house. If they can’t, they’ll get money from friends and people they know personally – in which case you wouldn’t be hearing about it third-hand from some web site that wants you to invest $200. That rule won’t guarantee you you’re not going to lose money – many penny stocks are garbage companies that you could trade through Merrill Lynch and find out it was a sucker’s bet anyway. But it is NEVER a good idea to “invest” money on some web site you’ve never heard of before.

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The CNN article highlights several kinds of annuities that are basically worthless to consumers, and I may come back to some of the others in a few days - but the one I want to highlight is the annuity swapping or switching scam. Here’s what happens:

Say you already have an annuity. A salesman – maybe the same one who sold the annuity to you – comes to you explaining that it’s outdated. Ah, but not to worry. He can exchange it for a new model that has better investment options and other up-to-date benefits. He might even throw in a bonus to sweeten the pot: an extra 1 percent to 5 percent of the amount you invest.

As enticing as this deal may sound, it’s almost always one you should pass on. The new and improved annuity will likely have higher annual charges, especially if it’s a bonus annuity. (The only way the insurer can afford to pay the bonus is to collect higher fees.)

Why does the salesman do this? Because a person who’s already bought an annuity is a ready-made customer. He already knows you’re interested. And with a swap, he can keep making sales to you every few years, over and over - he’ll just switch one annuity for another one that’s supposedly a lot better for you, collecting fees every time. This law firm web site explains some of the variants of the scam, and another law firm has a consumer alert here. 

As the CNN article points out, you probably should only be getting annuities that give you set monthly payments. There’s no point in an individual owning something as complicated as the stuff some of these people are selling. And follow that old rule about eggs and baskets – several of the people profiled in the article got into trouble mainly because they put gigantic chunks of their retirement savings into a single annuity, often without really researching it.

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Often these schemes are actually advertised in the newspaper, according to the FTC:

According to law enforcement agencies in the U.S. and Canada, ads and promotions for advance-fee loans suggest — or even “guarantee” — that there’s a high likelihood that a loan will be approved, regardless of the applicant’s credit history. But to take advantage of the offer, the consumer has to pay a fee. The catch? The scam artist takes off with your fee, and the loan never materializes.

Many advance-fee loans are promoted in the classified sections of daily and weekly newspapers and magazines. Often, the ads feature toll-free 800, 866, or 877 numbers, or area codes from Canada, such as 416, 647, 905, or 705. The loans also are promoted through direct mail, radio, and cable TV spots. The fact that an ad is in a legitimate media outlet — like the local newspaper or radio station — doesn’t guarantee that the company placing it is trustworthy.

The scammers try to play on a false notion that Canadian lenders are somehow more willing than U.S. ones to lend to people with bad credit – when in reality the standards are roughly the same. They also play on ignorance – anyone willing to give you a loan will be willing to put any fees into the balance of the loan, and legitimate lenders don’t ask you for a fee up front. They WANT it paid out over time because then they earn interest, too. So if anyone ever offers you a loan, if you’ll only pay some money first – hang up the phone.

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1) Never pay up front. It is actually illegal for a credit repair organization to receive money from you prior to the services being rendered. The Credit Repair Organizations Act places restrictions on what they can do, and it provides:

No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.

So if they’re asking you to pay up front, it’s a bad sign that they don’t care about what the law says.

2) They advise you to try to set up a separate credit report or use a different identity. Again, that’s illegal. The same Act provides in part that it is illegal to:

make any statement, or counsel or advise any consumer to make any statement, the intended effect of which is to alter the consumer’s identification to prevent the display of the consumer’s credit record, history, or rating for the purpose of concealing adverse information that is accurate…

3) They ask you to sign a contract before showing you a written statement titled: ‘Consumer Credit File Rights Under State and Federal Law’. Again, this is a legal requirement. They can’t enter into a contract with you without showing you this statement – it’s a pretty lengthy statement that shows your exact rights, and the Credit Repair Organizations Act requires it to be worded a certain way. If you never see that document, you’re dealing with someone shady – don’t sign anything if they don’t VOLUNTARILY show it to you. Don’t ask for it – use it as a warning sign. If they give you something to sign before giving you that document, say no thanks and walk out.

4) They don’t want to give you 3 days to cancel. You’ve got a legal right to cancel any credit repair services you agree to within three days. Ask them about it specifically. If they try to give you some line about how you can’t, you don’t want to deal with them.

5) Listen to your gut. Are they promising you something that sounds too good to be true? Don’t you remember what your parents used to tell you about things like that? Well, it was good advice. There is a limit to what credit repair agencies can legally do for you. If you ruined your credit, no one is going to be able to miraculously make those problems go away. If the credit repair agency is telling you that you should be paying debts on time, using well-accepted “tricks” like having a credit card and paying it off each month, and managing your money well – then they’re probably the real deal. If they’re telling you that everything will be OK if you report to the agencies that a Guatemalan coffee farmer has stolen your credit and then set up a Reverse Interdict Abraham Lincoln Trust in the Canary Islands to manage your funds, you should probably be a little suspicious. Scams usually sound like schemes.  

You can read up on the Credit Repair Organizations Act here, which outlines many of your legal rights.

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The reality is that there is no simple way to delete bad credit history. The credit agencies are only under an obligation to remove information that is factually inaccurate. There is a dispute procedure, and if you see anything inaccurate on your credit report you should be using it. However, they will conduct an investigation and will want you to submit any materials you have proving that the file has an error. They’ll also get in touch with the company that reported you – and if the file is accurate, you’re not going to get it removed.

A related scam is for the credit repair agency to tell you that they will dispute everything, hopefully getting some of the items removed in the process. Often this works – temporarily. There is a 30 day limit on the investigation process, and credit repair agencies that use this strategy hope to force the credit bureaus to investigate everything, meaning that some of the items on your credit report won’t get checked out in time. When it works, the credit agencies have to delete those items from the file. BUT – it’s only temporary. If they confirm the information after the 30 day period, they can put it back in. So what usually happens is that the credit repair company gets you what looks like a big improvement, and a month or two later you find out that your credit is back where it was. The credit repair company, however, is nowhere to be found or will point to a fine print clause saying it’s not their problem.

Discuss this on the Free the Drones Credit Forums here.