Page 25 - ACAMS-Today-V20N3

The new age
of investment fraud
Investments have quickly become synonymous with the fintech industry. Robinhood, Moneybox and now even
traditional banking institutions are increasing the ability for consumers to invest, save and grow their money. This increase in access has given fraudsters an opportunity to seize on the vulnerability and excitement of these consumers who in many instances have access to investment products and services for the first time.
Now more than ever, financial markets are seeing the influx of new investors who have held onto their cash due to canceled vacations and curbed spending following COVID-19 restrictions.1 According to a statistic from Bank of America, more money has gone into stock-based funds over the past five months than in the previous 12 years combined.2
Sadly, not all new and returning investors are as sophisticated as the fraudsters preying on them. These fraudsters are cunning and their schemes are elaborate enough to mislead consumers or even investigators. Recently departed Bernard Madoff misled many seasoned investors for years using his position and affinity to powerful members of society3 as well as plain lies and fake data.
Most investment fraudsters use similar tactics, such as leaving the impression that they have deep industry experience, falsely presenting themselves as licensed brokers, producing apparently credible websites (imposter websites) as well as falsified or inflated documentation to
substantiate their claims. Fraudsters always keep up with the times and they will be the first ones to exploit upward trends like investing in green energies, cryptocurrencies or in one of the next tech unicorns about to become public.
According to the Investment Association (IA) in the United Kingdom (U.K.), the number of investment scams has quadrupled since the first U.K. lockdown began in March 2020. Using various tactics like cloning fund managers’ websites, products and documents, and even creating fake price comparison websites, the scammers were able to steal almost 10 million pounds ($13.3 million) from U.K. investors.4 For many firms, they may not even offer investment services directly, but their brand can suffer as a result.
Typologies
Investment fraud has existed for years, but with greater access and global reach, it has changed in recent years. Below are some of the emerging or changing typologies explored.
Pre-initial public offering scams
“While legitimate offerings of pre-IPO shares in a company are not uncommon, unregistered offerings may violate federal securities laws,” says the U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy.5 Furthermore, any news of a possible initial public offering (IPO) of a tech startup sparks investors’ thoughts of getting their hands on the next Google or Facebook, and no one wants to miss that lucrative train. Investment fraudsters are readily exploiting this group of investors who often do not do their homework, fall for flashy bulletins or websites, or simply do not have the expertise to check the background of the broker/company making these offerings.
Whether it was Google, Airbnb, Lyft, Palantir or Uber, all have had their pre-IPO shares appear in various scams.6 This trend only continues with the tech market having grown significantly in recent years. According to The Wall Street Journal, “combined revenue for the five biggest U.S. tech companies——Apple Inc., Microsoft Corp., Amazon.com Inc., Google-parent Alphabet Inc., and Facebook Inc.——grew by a fifth, to $1.1 trillion. Their aggregate profit rose at an even faster 24%.”7 Who would not want to invest with these types of profit margins?
Pre-IPO scammers use various weapons from fraudsters’ arsenal. To prevent customers from being part of the long list of fraud victims, the following are some risk indicators to monitor:
• Scammers create websites using the name of the company and some combination with IPO. For example, “Money Ltd” would have a website called “themoneyipo.com,” “moneyipo.com” or “themoney-ipo.com.” They also often combine the commercial texts and logos taken from actual companies’ websites, making the bogus websites look legitimate.
[ AML CHALLENGES ]
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