Investment and Consumer Fraud

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Investment Fraud

Financial criminals attempt to exploit and monetize fear and uncertainty.  Investors need to be cautious about investments specifically tied to the threat of COVID-19. Bad actors push schemes that falsely purport to raise capital for companies manufacturing surgical masks and gowns, producing ventilators and other medical equipment, distributing small-molecule drugs and other preventative pharmaceuticals, or manufacturing vaccines and miracle cures. The schemes often appear legitimate because they draw upon current news, medical reports and social and political developments. 

Scammers exploit investor concerns about volatility in the stock market to promote “safe” investments with “guaranteed returns” or investments tied to gold, silver and other commodities; oil and gas; and real estate. Also common are “get rich quick” schemes that promise quickly earned guaranteed returns that can be used to pay for rent, utilities or other expenses. These schemes also target retirees and senior citizens, falsely claiming they can quickly and safely recoup any losses to their retirement portfolios.

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Pump and Dump Schemes and Stock Promotion Fraud

If you are considering investing in a company, especially in a microcap or penny stock, be skeptical of claims that products or services can prevent, detect, or treat COVID-19, or help to solve issues resulting from the current pandemic.

Scammers may promote false COVID-19 related claims on social media, online bulletin boards and in online chat rooms to create buzz about a company. Claims also might concern companies converting operations to COVID-19-related support, or legislative stimulus packages and related industries that supposedly benefit from the current crises.  You may lose a lot of money if you invest in a company based on inaccurate or unreliable claims or rumors. 

False claims about a company’s products and services are sometimes part of a pump-and-dump scheme. Investors are lured with aggressive and optimistic statements through press releases, social media, pop-up ads, emails and other promotions intended to create demand for a companies' stock (the pump). Once the share price and volume spike, the cons behind the scam sell off their shares at a profit, leaving investors with worthless, or near-worthless, stock (the dump).

Microcap stocks for which there is little publicly available information are often the subject of pump-and-dump scams because it is difficult for investors to verify the information provided by promoters or the company. 

Visit the SEC.gov(https://www.sec.gov/sec-coronavirus-covid-19-response) website to see recent company stock trading suspensions issued in connection with COVID-19.

Charitable Investment Scams

Many organizations currently offer opportunities to help those most affected by the COVID-19 pandemic.  Scammers may try to exploit your desire to help others by using charitable causes as a hook for investment schemes, claiming that your investment will provide financial support or medical treatment to people in need as a result of the COVID-19 pandemic and then steal your money instead.

If you are considering participating in an investment offered by a charity that claims to be a tax-exempt or “501(c)(3)” organization, check out the organization’s tax status on the Tax Exempt Organization Search on the Internal Revenue Service’s website.  If a so-called charitable organization is not listed, and has misrepresented that it is tax-exempt, do not invest in the organization.  Even if a charity has 501(c)(3) status, this does not mean the investment is a legitimate opportunity – it still could be part of a fraudulent scheme.  Ask questions and independently research the organization to find out as much as you can.

Private placements and off-market securities

Scammers will take advantage of concerns with risk and volatility in the regulated securities markets to promote off-market private deals. These schemes will continue to pose a threat to investors because private securities transactions are not subject to review by federal or state regulators.  Investors must continue to investigate before they invest in private offerings and independently verify representations made in the solicitation.  

Gold, silver and other commodities

 Scammers may also take advantage of the decline in the public securities markets by selling fraudulent investments in gold, silver and other commodities that are not tied to the stock market. These assets may also be attractive because they are often promoted as “safe” or “guaranteed” as hedging against inflation and mitigating stock market risks. However, scammers may conceal hidden fees and mark-ups, and the illiquidity of the assets may prevent retail investors from selling the assets for fair market value. The bottom line is there really are no “can’t miss” opportunities. 

Recovery Schemes

Investors should be wary of buy-low sell-high recovery schemes. For example, scammers will begin promoting investments tied to oil and gas, encouraging investors to purchase working or direct interests now so they can recognize significant gains after the price of oil recovers. Scammers will also begin selling equity at a discount, promising the value of the investments will significantly increase when oil markets strengthen. Investors needs to appreciate the risks associated with any prediction of future performance and recognize that gains in the markets may not correlate with the profitability of their investments. 

Get-rich-quick schemes

Scammers will capitalize on the increased unemployment rate. They falsely tout their ability to quickly earn guaranteed returns that can be used to pay for rent, utilities or other expenses. They also target retirees and senior citizens, falsely claiming they can quickly and safely recoup any losses to their retirement portfolios. Remember: if it sounds too good to be true, it probably is.  

Replacement and swap schemes

Investors should be wary of any unlicensed person encouraging them to liquidate their investment portfolio and use the proceeds to invest in what are promoted as more stable, more profitable products. Investors may pay considerable fees when liquidating the investments, and the new products often fail to provide the promised stability or profitability. Advisors may need to be registered with securities regulators before promoting these transactions and legally required to disclose hidden fees, mark-ups and other costs.   

Real estate schemes

Real estate investments may prove appealing because the real estate market has been strong and low interest rates have increased demand. Scammers often promote these schemes as safe and secure, claiming real estate can be sold and the proceeds can be used to cover other losses. However, real estate investments present unique risks, and changes to the economy and the real estate market may negatively impact the performance of the products. 

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How to Protect Yourself

Ask questions and research the investment and person offering it.

Investors should always ask if the salesperson and the investment itself are properly licensed or registered. This information can be confirmed by state and federal securities regulators. Contact the North Dakota Securities Department at ndsecurities@nd.gov, or visit their Website at ND.gov/securities.  Investors also can check the SEC’s Investment Adviser Public Disclosure database or FINRA’s BrokerCheck. Avoid doing business with anyone who is not properly licensed and registered.

Other Reliable Resources

  • Securities and Exchange Commission: The SEC Coronavirus (COVID-19) Response page offers updated information on its response to COVID-19 and the related effects on our securities markets. 

  • FINRA: FINRA's COVID-19/Coronavirus page provides guidance, updates and other information to help stakeholders stay informed about the latest developments.  

  • Commodity Futures Trading Commission: The CFTC has a dedicated webpage to highlight the Commission's actions related to COVID-19.

  • Consumer Financial Protection Bureau: The CFPB offers consumers up-to-date information and resources to protect and manage their finances at: Protecting your finances during the Coronavirus Pandemic.

  • North American Securities Administrators Association: NASAA has an investor-focused page that reminds investors to beware of con artists looking to profit from fear and uncertainty and has established a resource page to collect COVID-19-related updates from state and provincial securities regulators.

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Consumer Fraud

Below are prevalent coronavirus scams identified by the North Dakota Department of Financial Institutions and other consumer protection agencies,  along with tips to help identify and avoid them.

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Fake or Unregulated Lenders

You may be offered loans by non-bank lenders, many who operate solely on-line.    Some of these lenders are fake or are not licensed in North Dakota.  All non-bank lenders must have a money broker’s license issued by the North Dakota Department of Financial Institutions.  License verification can be found here.

Bank or FDIC Scams

Scammers will impersonate bank employees or representatives of the Federal Deposit Insurance Corporation (FDIC) and falsely claim that banks are limiting access to deposits or that there are security issues with bank deposits. 

Your deposits are safe in your financial institution – your money is physically secure and federally insured. 

The Commissioner of the Department of Financial Institutions issued a statement on March 25, 2020, highlighting the strength and stability of the U.S. Banking System.

 
Coronavirus Tests, Treatments and Cures

Ignore online offers, text messages, emails and phone solicitations pitching Coronavirus home test kits, medications and vaccinations. There are no products proven to treat or prevent COVID-19 at this time. While progress is being made, there also are no FDA-authorized home test kits for the Coronavirus.

Fake Charities and Crowdfunding Campaigns

Understandably, people want to help during a crisis.  When you decide to support a cause you care about, you want your donation to count. Doing some research and planning your giving can help ensure your donations get where they’ll do good and not into the pockets of a financial criminal.  Anyone can start an online crowdfunding campaign and scammers are creative in naming their fake charities.  Don’t let yourself be rushed into a donation, always verify the legitimacy of the charity through a trusted source, and never pay by cash, gift card, or wire transfer from your bank account.

These organizations offer reports and ratings about how charitable organizations spend donations and how they conduct business:

 

The IRS’s Tax Exempt Organization Search tells you if your donation would be tax deductible.

Government Impersonation

Watch for emails claiming to be from the Centers for Disease Control and Prevention (CDC) or experts saying that have information about the virus. For the most up-to-date information about the Coronavirus, visit the Centers for Disease Control and Prevention (CDC) and the World Health Organization (WHO).

Scammers impersonating government agencies are sending emails and text messages claiming the government needs you to take an “online coronavirus test” by clicking a link they provide. No such test currently exists and if you click on the link, scammers will download malware onto your computer and gain access to your private personal information.

Government agencies will not send emails or call you asking for personal information in order to receive federal relief funds.  Do not respond to any inquiries asking for verification of personal information including Medicare, Medicaid or Social Security benefits in exchange for receiving stimulus funds, unemployment benefits or other government benefits.

Employment Scams

Many people are looking for work online in the wake of Coronavirus shutdowns. Scammers find ways to take advantage of this by posting fake work-from-home jobs promising remote work with good pay and no interview required. These cons often use real company names and can be very convincing.

After you are “hired,” the company may charge you upfront for “training.” They will require you to provide your personal and banking information, claiming they will need to run a credit check or set up direct deposit. You may be “accidentally” overpaid with a fake check and asked to deposit the check and wire back the difference. Or, you are asked to buy expensive equipment and supplies to work at home.

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HOW TO PROTECT YOURSELF

  • Think twice before you click. If you receive an unsolicited text or email from someone you don’t know asking you to click on a link, don’t do it. Scammers are using links and attachments that will download malware onto your electronic devices and steal personal information.

  • Do your homework. Even if a call or message seems to come from an official source, research it before handing over sensitive information, such as your name, address, or banking information. Scammers often try to earn consumers’ trust by impersonating reputable, official institutions.

  • Don’t accept calls from strangers. Con artists may call your home claiming to work for the government or a healthcare system. Remember, neither the government, nor any healthcare related agencies make unsolicited calls to individuals.

  • Research before you donate. If you feel compelled to support a Coronavirus related cause with a financial donation, make sure the charity is legitimate.

  • Be alert to stimulus payment scams.   Federal stimulus payments will be issued automatically, with no action required for most people. No one will call, email or text you from the government about your payment, and you should never pay any fees to receive your stimulus payment. Nor should you receive a message on how to find out the status of your stimulus payment. To get the latest updates on economic impact payments, check the official irs.gov website regularly. 

  • Watch out for fraudulent stimulus checks.  To protect yourself from counterfeit U.S. Treasury checks, know what to look for and where to look to confirm authenticity.  The U.S. Secret Service and the U.S. Department of Treasury released guidance here.  The government will not overpay you and ask you to send the surplus back.

OTHER RELIABLE RESOURCES

North Dakota Department of Financial Institutions https://www.nd.gov/dfi/

Consumer Resources, North Dakota Attorney General https://attorneygeneral.nd.gov/consumer-resources

North Dakota Secretary of State, Registered Charities Information https://firststop.sos.nd.gov/search/charitable

United States Federal Trade Commission https://www.consumer.ftc.gov/

United States Internal Revenue Service https://www.irs.gov/

United States Department of the Treasury https://home.treasury.gov/

Better Business Bureau https://www.bbb.org/

Charity Watchdog Organizations:  www.charitynavigator.org,  www.give.org, www.charitywatch.org

FBI Covid-19 Information https://www.fbi.gov/coronavirus

FEMA Coronavirus Rumor Control www.fema.gov/coronavirus