New Scams Involving Brokerage Firms Surface

In this difficult economy, more individuals are looking towards solid investments as a hedge against future tough financial times. However, as with any downturn in the economy, scammers are focused on taking advantage of an unfortunate situation by interjecting themselves into a legitimate investment arena. One of the most common ways that this is done is by creating a fake website that capitalizes on the reputation and good name of a legitimate brokerage firm. [1] Through the theft of a legitimate brokerage firm’s identity, the scammers can claim to be registered with FINRA and members of the Securities Investor Protection Corporation (SIPC). Potential victims will even be directed to the FINRA and SIPC websites in order to “verify” the scammer’s fake brokerage website. This provides the potential victim a false sense of security.

How the Scam Operates

Through the use of their phony websites, the scammers will attempt to offer shares of smaller U.S. companies to foreign investors. Once the “sale” has been completed, the price will invariably fall and the money invested will be lost. In another variation of this scam, the scammers will offer to assist in the recovery of the losses through the sale of stock (that is usually purchased through another scam). At that point, the victim is directed to purchase a performance bond or deposit funds into an “escrow account”. Of course, the scammers then vanish with the funds and sensitive personal financial information.

An example of this occurred in 2004 when a cease and desist order was issued by the Missouri Secretary of State’s Office against a company charged with appropriating the name of a genuine brokerage firm. The stolen name was then used for the creation of a fake “virtual office” along with a fake website with a phony Kansas City address. [2] In this case, international investors were solicited to exchange shares of Yahoo stock for thinly traded securities. The transaction required money to be deposited in a National Bank of Greece in Cyprus escrow account. This was said to comply with “short sale regulations”. While the victims were directed to check out the legitimacy of the brokerage firm with SIPC, needless to say that membership only applied to the stolen identity of the real brokerage firm and not the scammers.

Scams Are Growing More Sophisticated

Identity theft scammers are growing increasingly sophisticated. At one time, a phony site could be identified by misspelled company names and unclear website URLs. But in recent times, websites that seem legitimate can be traps which direct users to fraudulent websites. This is accomplished through code that is technically buried within the message.
Identity theft scammers have also learned to alter the host file in MS Windows in order to affect a victim’s browser. In this scenario, a typed Web address can lead you directly to a fraudulent website.

Protecting Yourself from Online Identity Theft

There are ways to protect yourself from brokerage firm scams and identity theft. The first step is to be wary of any email that requests personal information. Never reply directly to an unsolicited email and never click on a link in an unsolicited email that asks for personal financial information such as; brokerage account information, PINs, passwords, bank information or credit card information. The easiest thing to do, when in doubt, is to go directly to your main credit card website, brokerage firm or bank. You can also call your financial institutions by phone. If you find yourself on a website that doesn’t look like it’s legitimate – leave that site immediately.

You can keep your online financial information secure by:
• Installing the latest security patches for your operating system.
• Update your spyware and antivirus software regularly.
• Install and use a personal firewall.
• Do not install or download unfamiliar software.
• Make sure that you change your passwords regularly.
• Only use financial websites that are secure; (padlocked image or https:// – rather than just http:// with no “s”), although this can also be forged, the absence of a secured website indicator is a red flag.
• After completing transactions online – make sure to log off.
• Be wary of using Internet kiosks and computers belonging to other people.

References:
1. Fake Brokerage Firms on the Internet, Ms Financial Savvy, Lois Center-Shabazz, 2005, http://www.msfinancialsavvy.com/article.php?aId=14
2. Kansas City Company Involved in Identity Theft Ordered to Halt Solicitations of Investors by Blunt , Missouri Secretary of State, Robin Carnahan, http://www.sos.mo.gov/news.asp?id=324

Related Topics: Identity Theft Resource