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 Tennessee, advance fee frauds are considered illegal and are covered under various state and federal laws. These schemes, where individuals are asked to pay an upfront fee with the promise of receiving a larger amount of money or valuable goods later, often do not result in the promised delivery and are a form of financial fraud. Under Tennessee law, such activities may fall under the Tennessee Securities Act of 1980, which is designed to protect investors from fraudulent investment schemes, including advance fee schemes. Additionally, these frauds can be prosecuted under the Tennessee Consumer Protection Act, which prohibits deceptive and unfair business practices. At the federal level, the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC) also combat advance fee frauds, with the SEC focusing on schemes involving securities and investments. Victims of advance fee frauds in Tennessee can report these incidents to the Tennessee Department of Commerce & Insurance's Securities Division, the Tennessee Attorney General's Office, or federal agencies like the FTC or SEC. It is important for investors to be cautious and to verify the legitimacy of any investment opportunity requiring an advance fee.