This type of crime-fighting is difficult even in good times. Victims are often too embarrassed to report they’ve been scammed. And even when the criminals are caught, much of the money they stole has already been spent. Add in a pandemic, which resulted in court closures and the rescheduling of jury trials and grand-jury proceedings, and 2020 was a very tough time for prosecuting con artists.
“The states did a tremendous job pivoting to handling everything we have to handle electronically and figuring out how to do that,” said Melanie Senter Lubin, NASAA’s president and Maryland’s securities commissioner.
NASAA’s annual enforcement report showed con artists fleecing investors in schemes involving everything from cryptocurrencies to precious metals. State regulators reported a surge in commodities fraud — particularly investment schemes tied to gold or silver — that frequently target seniors. Last year, state regulators opened up 147 investigations of commodities schemes, up from 69 in 2019.
“NASAA members are consistently on the front lines of the fight against financial exploitation of investors, including the elderly and the most vulnerable,” Joseph Borg, chair of the NASAA enforcement section and director of the Alabama Securities Commission, said in the report.
In addition to the familiar investment-fraud activities, state securities regulators have taken on more and bigger cases that have focused on technology, precious metals, self-directed individual retirement accounts, and the growing number of seniors and vulnerable adults, according to Borg.
In September 2020, 30 state securities regulators joined the Commodity Futures Trading Commission (CFTC) in filing a federal lawsuit against a company allegedly involved in a gold and silver investment scheme that bilked over $185 million from more than 1,600 investors. Most of the victims were seniors who lost their retirement money.
The victims purchased the precious metals at “grossly inflated prices” that averaged two to four times the prevailing market price, according to the enforcement action, which was the largest joint filing with state regulators in CFTC history.
The coronavirus made what criminals do easier. More people were home to answer their phones, and more people were worried about a downturn in the stock market. Trapped at home, often isolated from others, people became more susceptible to the promise of better investment returns or fear that police were on the way to arrest them for alleged crimes committed using their Social Security number.
“There were a lot of opportunistic frauds,” Lubin said. “Some of the most effective frauds are the ones that pick up on information that is current.”
Internet and social media fraud were also prevalent because of the pandemic. Scammers used people’s fears to pitch covid cures or investments that supposedly would help people cash in on ventures connected to the coronavirus, such as a shortage of masks or hand sanitizer.
“By leveraging the popularity of platforms such as Facebook and Twitter and LinkedIn, scammers try to add legitimacy to their schemes, quickly establishing trust and credibility in an otherwise anonymous environment,” the NASAA report said.
The report also pointed to the effectiveness of rules based on NASAA’s “Model Act to Protect Vulnerable Adults From Financial Exploitation,” which mandates action when a financial professional believes a senior or vulnerable adult may be the victim of financial exploitation or is about to be victimized. To date, 32 jurisdictions have enacted rules or legislation based on the model rules, the NASAA report said.
As much work as state regulators do, it’s important that you look out for these red flags:
You’re promised a low-risk, high return. If anyone is promising you that a low-risk investment has a guaranteed high return, you are probably about to be scammed. Any promotion that uses the words “secure,” “guaranteed” or “safe” along with a promise of a high return is most likely a fraud.
Even investments that seem reasonable can be deceptive.
A Texas man who advertised himself as the “Money Doctor” was sentenced to 25 years in state prison last year. William Gallagher, who pleaded guilty, was ordered to pay more than $10.3 million in restitution to the victims of his Ponzi scheme, which specifically targeted elderly investors’ retirement funds. Gallagher falsely claimed to be a licensed investment adviser and promised investors that they would receive guaranteed, risk-free returns ranging from 5 percent to 8 percent a year.
You’re pressed to recruit friends and family members. If your big payoff depends on the recruitment of others, you are probably being enticed into a pyramid scheme.
You’re told a tax bill needs to be paid with a gift card. This is 100 percent a scam. No government agency will ask you to pay a fine or penalty in gift cards — or in wire transfers, for that matter.
Contact your state securities regulator to check that the seller is licensed and the investment being promoted is registered. Go to nasaa.org to find your state securities regulator’s office. There’s a link for “Contact Your Regulator.” Trust me, they want to hear from you before you hand over any money.
Help these first responders keep you safe. Investigate before you invest.