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Blindly trusting 'me' is a mistake

Years ago, I got to the point where I was convinced that nothing people do for, with or about money would surprise me.

And despite the rampant stupidity, greed, and silliness I have seen in the intervening years, nothing really did shock me . . . until last week.

That's when Reuters ran a story about a personal finance fraud sweeping Japan, one known by the media there as the "Hi, it's me" swindle.

While I have yet to hear of this occurring in America, the idea that anyone in a modern world would be taken in by this has me flabbergasted. Scam artists call their victims on the phone, and identify themselves only as "me." They say they're in desperate need of money to cover some emergency. Think uninsured traffic accident all the way to unexpected pregnancy.

The victims assume the person on the phone must be a close relative and, without questioning why their niece or nephew suddenly sounds different, agree to transfer the money to a bank account specified by the swindler.

According to reports by Reuters and in the Japanese media, around 3,800 cases of this scam have been reported, with more than $21 million involved. That means the average swindle is worth more than $5,500. Worse still, authorities figure that if 3,000-plus cases have been reported, there are at least that many more where the victims have been too embarrassed to come forward.

At this time of year, a lot of personal finance journalism is focused around consumer protection, making sure holiday gift-giving doesn't send you to the poor house and taking what few actions you can complete before year's end to minimize your annual tax bill.

All of that advice is over the head of someone who would send money to "me," the person at the other end of the phone who calls asking for it.

So here's some advice that fits everyone, from the person getting that "emergency" phone call to the person faced with a cold call, selecting a financial adviser or virtually any other financial task: Never commit money without doing a background check.

For the victims of the "Hi, it's me" scam, that would mean saying, "I'm sorry, I don't recognize your voice. . . . Who is this?"

In the case of people who run across rogue brokers and financial advisers, virtually every fraudster -- and it's a mighty small percentage of the people out there working in the field -- could have been stopped by running a background check on both the individual and the firm. That's as easy as contacting your state securities regulator (you can get the contact information from the North American Securities Administrators Association at www.nasaa.org) or the National Association of Securities Dealers (the "broker check" feature at www.nasd.com).

With virtually any investment, it's why you look not only at the promises for what it can deliver but how it has performed in the past.

In all cases, past performance is no guarantee of what you will get, but a modicum of caution goes a long way to protecting individuals from becoming a statistic.

And each and every scam that comes to the fore, even one as ridiculous as "Hi, it's me and I need money," proves that again. . . .

Last week was National Retirement Planning Week, sponsored by the National Association of Variable Annuities.

I enjoy taking note of ridiculous celebrations, though I try to avoid the story ideas that inevitably get pitched around them.

One thing I did not want to avoid was the opportunity to talk with Ben Stein, who was honorary chairman for the nationwide effort to raise financial awareness. I'm not sure whether Stein is best known for his game show, "Win Ben Stein's Money" on Comedy Central, or for his movie roles in films like "Ferris Bueller's Day Off," but he's also written a bunch of books on finance and economics (his late father was Herb Stein, chairman of the Council of Economic Advisors under Presidents Nixon and Ford).

Stein said on my radio show that the thing that struck him most was the size of the problem, just how many people are so short on savings for retirement.

With that in mind, I asked for his advice on how people might deal with the current scandals shaking the mutual fund industry, since funds are the average guy's number one savings vehicle. His perspective was one of the most unique I've heard.

"If you assume of every $1,000 you invest in a mutual fund, $1 will be stolen, that's outrageous, but that doesn't make mutual funds a bad way to save," Stein said, noting that he prefers exchange-traded funds and index funds, which have thus far been unscathed by the scandals.

"It's not that you want to have these problems, because you don't -- and they're horrible and unspeakable and the people involved should be ashamed," Stein said. "But the fact that some amount of your money might be taken away by criminal people should not stop you from saving.

"When you're 75 and have your bills to pay, you can't say `Sorry, I didn't save when I was 50 because I was mad at the mutual fund industry.' . . . If you let the headlines convince you not to save, you'll be a victim in this, too."

Chuck Jaffe is a senior columnist at CBS Marketwatch. He can be reached at jaffe@marketwatch

.com or at P.O. Box 70, Cohasset, MA 02025-0070.

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