It is an unwritten rule in the music industry: You've got to fake it to make it.

In other words, talent alone is usually not enough to break through in a crowded, competitive field. You also have to walk the walk … rock the style … make it look as though your success is inevitable, at least until the rest of the industry buys it.

"As much as I don't like the rule, it works," rapper Tony Hayes — known as "4-Ize"—told CNBC's "American Greed."

That helps explain how he got hooked up with a purported music promoter named Michael "Ferrari Mike" Banuelos. And while the nickname "Ferrari Mike" might be a dead giveaway in a lot of other industries, it seemed like just the ticket in Hayes' quest for a solo hip hop career following years playing backup for the likes of his friend Chris Bridges, also known as Ludacris. In the music industry, flash, dazzle and bling can go a long way. Ferrari Mike had all of that and then some.

He claimed to have relationships with some of the biggest players on the hip-hop scene. That helped him raise thousands of dollars from investors, supposedly to promote 4-Ize's career. But it eventually became clear that all Banuelos was really interested in promoting was himself.

"We were faking it too hard, as opposed to making it," Hayes recalled. "I had an album release party for an album that nobody heard. I had an ice sculptor. I had, like, 20 models."

What he didn't have was the business plan Banuelos had promised to provide.

That is not to say Banuelos was not hard at work. Big events like the 4-Ize album party helped Ferrari Mike develop his carefully crafted image as a hip-hop mogul. That attracted investors, as well as people like Titus Tynan of Hawaii.

In 2008, Tynan was looking to promote his 17-year-old son's hip hop duo Hi-Life. The group had won music contests in Hawaii, gaining enough acclaim to catch the attention of Ferrari Mike Banuelos thousands of miles away in Atlanta.

"He wanted to schedule a time for us to fly up to meet with him and meet with some of the music producers that could evaluate them further," Tynan recalled. "So me and the, the guys, you know, we said, "OK this is our big chance. We're going to go to Atlanta.'"

The bait was set.

Banuelos would personally pick up the group at the airport and drive them to his home, where they were suitably impressed.

"Everything that we were told, it was kind of like what was coming true," Tynan recalled.

His son could barely believe his eyes.

"I did look for the Ferrari and I saw one," Kaleo John Tynan recalls. "I saw an Aston Martin, too."

Ferrari Mike had them in his trap. Now it was time to pounce.

"He said that in order to make sure that you guys are actually a part of this you know there's going to be some investment on your behalf," Titus Tynan said.

First, they had to cough up $12,000 for a demo tape, which the group returned to Atlanta to record. But that was just the start.

With the demo tape recorded, Banuelos was able to reel the group in with some big news: Legendary hip hop label Def Jam wanted to sign the group for $23 million, plus another $1 million for a 56-date concert tour with none other than Ludacris.

"Me and my partner was talking about it like this could be the moment right here, you know," Kaleo John Tynan said.

There was just one little catch. Banuelos would need more money — $268,000 to be precise — to get the deal off the ground.

"You know that's everything I got," Titus Tynan recalled. But he rounded up the money anyway.

"I was behind the dream of my son, and so we said we were going to go all in and, and started asking for support from you know, friends and family that you know weren't rich. I mean this was money they couldn't lose."

But Titus did lose — his life's savings, and all his friends' and family's investments. There was no concert tour, and there was no record deal.

Titus tries every month to return at least some of the money he raised from his friends and family. But far worse than the financial loss, he says, is what the experience did to Kaleo and his partner.

"That was their dream and I could see their eyes. They had this shine in their eyes and I saw it dull. And that just killed me," Titus said.

As for Ferrari Mike, he's now Federal Prison Mike, serving a 6½-year sentence after pleading guilty to a single count of wire fraud totaling some $2.5 million.

Unfortunately, stories like this are all too common in a business where dreams of fame and fortune can cloud even the most level-headed musician's best judgment — or that of their parents.

Many of the scams involve talent agencies — prompting the state legislature in California, where many agencies are based, to adopt the Krekorian Talent Scam Prevention Act in 2009. The law makes it illegal to charge an upfront fee for representation, mandates specific terms in the contract between artist and agent, and gives the artist 10 days to cancel a contract after it has been signed. But alleged scams still keep popping up.

In January, Los Angeles City Attorney Mike Feuer announced criminal charges against 53-year-old Debra Baum, who allegedly was charging a 19-year-old woman who had been singing in a hair salon $10,000 a month to handle her vocal career. The singer allegedly paid Baum $70,000 in management fees, plus thousands more for services like vocal training, before finally breaking off the contract.

Baum, who declined to comment when contacted by "American Greed," pleaded not guilty. She could face up to two years in prison and $20,000 in fines if convicted. No trial date has been set.

In a statement in January, Feuer said the case is a cautionary tale.

"Thousands come to Hollywood every year to pursue their dreams in the entertainment industry," Feuer said. "We need to protect them from those who would dash those dreams by taking unfair advantage of them."

But not every state has such strict protections for budding entertainers, so Feuer offers some warning signs if someone is promising to make you a star. According to the list, that person might be scamming you if he or she:

• Requires you to pay upfront for representation. "Legitimate agents and managers don't charge for services. They are paid on a commission basis only."
• Charges you for an audition.
• Approaches you in a public place like a shopping mall, or advertises on radio, TV or sites like craigslist.
• Promises special connections, and "name drops" famous actors or musicians he or she has supposed worked with.

Also, beware of agents who require you to use specific third parties for head shots, demo tapes and other services. Agents can make recommendations, but the final decision should be up to you with no obligation.

If you are a parent hoping to help your child break into show business, do your homework with the help of the BizParentz Foundation, a nonprofit coalition of parents, government and industry organizations. (Be sure to spell the name correctly — ending with a "z" — or you could find yourself at a website promoting — you guessed it — kids' talent agencies.)

It may be a necessary evil in the entertainment business that you have to "fake it to make it," but beware — there are plenty of people out there who are faking it just to scam you.

Watch "American Greed," Thursdays at 10p ET/PT on CNBC Prime.