Cybercrime is becoming ever more pervasive, and with so many more people working at home during the COVID-19 coronavirus pandemic, the risk of a fraudulent wire transfer and other financially motivated crimes is higher than ever.

Fraudsters use crisis events to target good-hearted investors.

The SEC and other federal and state regulatory agencies are paying close attention to COVID-19-related financial fraud, such as fraudulent stock promotions and unregistered offerings, charitable investment scams, and community-based financial frauds. Since February 2020, the SEC has suspended stock trading in connection with COVID-19 for at least 23 companies, and has initiated at least five emergency enforcement actions against companies seeking to exploit investors with false and misleading promises. These investment scams include fraudulent claims of N95 mask production, and manufacturing COVID-19 blood tests and thermal scanners for fever detection.

The FBI’s Financial Fraud Kill Chain:  A Resource for Recovering Stolen Funds

Unfortunately, while regulatory agencies work hard to shut down fraudulent scams, it can be difficult to impossible to recover money from the fraudsters.  Especially if the investor funds or cybercrime victim’s bank account funds have been transferred overseas. The Financial Fraud Kill Chain (FFKC), a program administered by the FBI, is a critically important tool that can cut off large international wire transfers. But victims need to act fast, within 72 hours of the wire transfer.

How does the Kill Chain work?

Financial fraud scams are often international, with unsuspecting investor money transferred from the United States to overseas financial institutions via international wire transfers through the SWIFT system. Cybercriminals hacking email accounts may use personal information to prey on individuals (“I’m traveling overseas and need money for a plane ticket home”). Businesses are also targets of cybercriminals. For example, corporate account takeovers and business e-mail compromise scams may be used to redirect legitimate wire transfers to fraudulent overseas accounts.

The Kill Chain utilizes the FBI’s international relationships to help U.S. financial institutions recover large international wire transfers. If the Kill Chain is activated, the FBI can prevent the withdrawal of stolen funds by cutting off the SWIFT transfer.

What kind of transfer qualifies to initiate the Kill Chain?

The FFKC can only be activated if:

• The wire transfer is $50,000 or more;
• The wire transfer is international;
• A SWIFT recall notice has been initiated; and
• The wire transfer occurred within the last 72 hours.

To initiate the FFKC process, you should immediately contact your local FBI field office and also notify your financial institution that originated the transfer. Because time is of the essence, call your local FBI office and fill out an on-line complaint through the FBI’s Internet Crime Complaint Center (IC3).

Providing the FBI with more information will allow the agency to respond more effectively, but all complaints should include the following:

• Victim business name and address,
• Transaction type, amount, and date,
• Originating bank name and address,
• Beneficiary bank name and address,
• Beneficiary account number,
• Beneficiary bank location (if known), and
• Intermediary bank name (if known).

If you or your business has been the victim of wire transfer fraud, consider still reporting it to the FBI even if the fraud does not meet the above criteria to initiate the Kill Chain.

And as we all work to protect ourselves and each other during the coronavirus pandemic, COVID-19-related investments scams should be reported to the SEC and your state’s securities regulator. 

Darlene Pasieczny is a fiduciary and securities litigator at Pasieczny Law LLC.  She represents clients in Oregon and Washington with matters regarding trust and estate disputes, financial elder abuse cases, and securities litigation. She also represents investors nationwide in FINRA arbitration to recover losses caused unlawful broker conduct.  Her article, New Tools Help Financial Professionals Prevent Elder Abuse, was featured in the January 2019, Oregon State Bar Elder Law Newsletter.

This past Thursday, the same day I posted about a recent FINRA Investor Alert regarding cryptocurrency, there was a new press release from the North American Securities Administrators Association (NASAA) with further guidance on the same topic. NASAA’s analysis and warning amounts to this:  Initial Coin Offerings (“ICOs”), and all other investment products related to cryptocurrency or the blockchain, pose a threat to investors.

“A NASAA survey of state and provincial securities regulators shows 94 percent believe there is a ‘high risk of fraud’ involving cryptocurrencies. Regulators also were unanimous in their view that more regulation is needed for cryptocurrency to provide greater investor protection.”

The same day, the SEC made a public statement from Chairman Jay Clayton and Commissioners Kara M. Stein and Michael S. Piwowar, in wholehearted agreement with NASAA:  “The NASAA release also reminds investors that when they are offered and sold securities they are entitled to the benefits of state and federal securities laws, and that sellers and other market participants must follow these laws. Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency – related investment markets are not following these laws. The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.”

“High risk of fraud”?  That’s a polite understatement. The conditions in this cryptocurrency market are the perfect conditions for bad actors to harm investors and cause investment losses. How? Fraud through market manipulation. Fraud through technical manipulation. Fraud through plain theft. Adverse terms and conditions on a clickthrough agreement. Technical failure, incompetence, malfeasance on the part of the provider. Cyberthreats from third parties online, vandals or burglars. Misrepresentations of the real possibility that cryptocurrency is an object of temporary interest, the bubble will pop, and prices will drop.

And, of course, bad actor conduct includes flawed recommendations by financial advisors to jump in and buy these new, complicated products related to cryptocurrency.  If your portfolio contains investments that, on closer examination, are not plausible or not understandable, that’s one of the ten red flags of financial fraud.

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations.  Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or if your broker has stopped returning your calls, contact me for a free, confidential consultation at (503) 358-8292.

FINRA recently released an Investor Alert on cryptocurrency scams. Investors should be wary of jumping into this “hot,” volatile sector, and do their research before handing over their money to a potential fraudster, or for a risky investment that they don’t understand.

In the last quarter, cryptocurrencies such as Bitcoin and Ripple have received a fresh burst of press attention. This includes reporting on massive price swings up and down, and stories of overnight millionaires. According to the media, a Welsh man who spilled lemonade on his laptop in 2013 and absentmindedly threw the hard drive away now wants to mine the local dump for the hard drive. Why? It contained the key to access his lost Bitcoin fortune said to be worth $100 million — but only if he finds it and if the drive is still operational.  It’s a good metaphor for Wild West, gold rush atmosphere of the whole cryptocurrency hype.

With this Investor Alert, and other recent warnings, FINRA points out that:

• Investment offerings based on distributed ledger or “blockchain” technologies may or may not qualify as securities. Many fundamental investor protections written into federal and state law depend on this distinction.
• The cryptocurrency markets inherently transcend national borders. This also limits investor protections. There may be restrictions on how much information the SEC can obtain about the investment, the quality of the information, and limit law enforcement ability to recover money.
• An “initial coin offering” (ICO) for a cryptocurrency is nothing like an “initial public offering” (IPO) for a stock.
• Lack of regulation, lack of clarity about the underlying value of the investment, and the excitement in the market create the perfect conditions for market manipulation and “pump-and-dump” schemes. Fraudsters may use the hype and make false, misleading or greatly exaggerated statements to drive up a higher share value, and then cash out their large holdings at the peak, driving values down and leaving innocent investors at a loss.
• Even if there’s no trace of fraud in an ICO, blockchain operators may themselves be vulnerable to hacking and other cyber threats

According to a December 11, 2017, public statement from SEC Chairman Jay Clayton, the number of such investments registered with the SEC is ZERO. “Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.”

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations.  Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or if your broker has stopped returning your calls, contact me. Consultations are free and confidential. Call (503) 358-8292 now.