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 Washington State, advance fee frauds are illegal and are considered a form of white-collar crime. These schemes violate various state and federal laws, including the Washington State Securities Act, which prohibits fraudulent and deceptive practices in the sale of securities. The Act requires that all securities and individuals selling them must be registered unless they qualify for an exemption. Additionally, the Washington State Department of Financial Institutions (DFI) warns investors against advance fee schemes and provides resources for consumers to verify the legitimacy of investment opportunities. At the federal level, the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC) also combat advance fee frauds, with the SEC focusing on securities-related fraud and the FTC addressing broader consumer protection issues. Victims of such frauds can report to the Washington State DFI, the SEC, or the FTC, and may seek legal recourse through civil litigation or report the matter to law enforcement agencies for potential criminal prosecution.