Advance fee frauds ask investors to pay a fee up front—in advance of receiving any proceeds, money, stock, or warrants—in order for the deal to go through. The advance payment may be described as a fee, tax, commission, or incidental expense that will be repaid later.

Some advance fee schemes target investors who already purchased underperforming securities and will offer to sell those securities if an advance fee is paid—or target investors who have already lost money in investment schemes. Fraudsters often direct investors to wire advance fees to escrow agents or lawyers to give investors comfort and to lend an air of legitimacy to their schemes. Fraudsters may also try to fool investors with official-sounding websites and e-mail addresses.

Advance fee frauds may involve the sale of products or services, the offering of investments, lottery winnings, found money, or many other so-called opportunities. Fraudsters carrying out advance fee schemes may:

• Offer common financial instruments such as bank guarantees, old government or corporate bonds, medium or long term notes, stand-by letters of credit, blocked funds programs, fresh cut or seasoned paper, and proofs of funds;

• Offer to find financing arrangements for clients who pay a finder’s fee in advance; or

• Pose as legitimate U.S. brokers or firms and offer to help investors recover their stock market losses by exchanging worthless stock—but requiring investors to pay an upfront security deposit or post an insurance or performance bond.

In California, advance fee frauds are illegal and are considered a form of white-collar crime. These schemes violate various state and federal laws, including the California Penal Code and the Federal Trade Commission Act. Under California law, specifically the Penal Code sections 532(a) (Theft by False Pretenses) and 484 (Theft), it is a crime to obtain money or property through false or fraudulent representations. Additionally, the California Business and Professions Code section 17511.5 specifically addresses advance fee frauds in connection with the sale of goods or services. At the federal level, the Securities and Exchange Commission (SEC) may pursue cases of investment-related advance fee frauds under the anti-fraud provisions of the federal securities laws. The Federal Trade Commission (FTC) also combats these types of frauds by enforcing the FTC Act, which prohibits deceptive business practices. Victims of advance fee frauds in California can report the crime to local law enforcement, the California Attorney General's office, the FTC, or the SEC, depending on the nature of the fraud.