Firm Identity Protection
FINRA has created this page to educate member firms on “Firm Identity Theft”. The page offers information on
Over the past few years, there has been a steady increase in the number of incidents where a person or firm fraudulently uses the identity of a legitimate registered representative or brokerage firm to con investors out of their money.
Here’s how it works: The fraudsters identify a legitimate broker-dealer or registered representative and build professional-looking Web sites that mirror the sites of the legitimate broker-dealer or registered representative. The fictional online entity claims to be registered with FINRA and SIPC (some will even encourage investors to research them on FINRA’s BrokerCheck or SIPC’s Web site). Once investors are convinced of the authenticity of the fraudulent Web site, they are induced into making payments or investments through the site. The fraudsters then collect the investors’ money and disappear.
There are several tricks these fraudsters use to convince investors of their legitimacy and earn investor trust:
Advanced Fee Schemes
A common Firm Identity Theft scheme that targets international investors is the “advance fee scheme” or “mirror fraud”. Under this scheme, a fraudster uses the identity of a legitimate broker-dealer and contacts an investor with a “too-good-to-be-true” offer. For example, the fake broker-dealer may offer to lift a stock restriction or to purchase the investor’s shares for an amount significantly above their market value. In return, the investor is asked to pay certain fees and expenses in advance. Once the investor has paid the fees, the fake broker-dealer steals the money and disappears.
Fraudsters typically use the advance fee schemes to target English-speaking investors in countries such as Australia, New Zealand, Singapore, China, and South Africa, though investors from areas such as northern Europe also appear to have been affected. These scams are difficult to pursue as they span numerous countries and jurisdictions. Therefore, education is a key tool in combating this fraud. U.S. and overseas regulators have extensive online material to assist investors in recognizing these schemes (see links below).
Fraudulent Check Schemes
Another type of Firm Identity Theft scheme involves the use of fraudulent checks. Again, under such a scheme the fraudster steals the identity of a legitimate broker-dealer. Under the guise of this stolen identity, the fake broker-dealer contacts a “customer” with a lucrative offer, one that does not typically involve securities. For example, the fraudster may offer to purchase an item listed on Craigslist for a very appealing price. The fraudster will mail the customer a check for well above the asking price and then claim that the excess amount on the check was written in error.
The customer is instructed to deposit the check in his or her personal account, keep the prearranged amount, and wire money or write a check for the difference from his or her personal checking account to a bank account established by the fraudster. In an effort to convince the customer of the stolen identity, the fraudster will use the broker-dealer’s true address as the return address on the mail sent to the customer. Believing they are dealing with a real broker-dealer, the customer is persuaded to send money.
Fraudsters take advantage of U.S. regulations regarding checks in their scam. U.S. regulations require banks to release funds from a customer’s deposit typically within one to five business days. In practice it may take longer for a bank to discover that a check is fraudulent, by which time the fraudsters usually disappears with the customer’s money. Customers do not realize that they are scammed until after they have already paid the fraudster and the fraudsters’ check has bounced.
Here are some steps broker-dealers and registered representatives can take to protect their professional identities.
If a firm or a registered representative believes that their professional identity is being employed in a scam, they should:
A broker-dealer or registered representative should encourage an overseas investor impacted by such scams to contact their home country’s securities regulator. Information on country securities regulators can be found with the International Organization of Securities Commissioners (IOSCO). Investors should also be encouraged to file a complaint with the SEC and FINRA.
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