Financial Losses with Follow Up Scams

The Financial Industry Regulatory Authority (FINRA) recently issued an alert to warn investors, particularly investors who live outside the U.S., that offers to recover money lost from securities investments may be fraudulent (follow up scams). Both FINRA and the SEC routinely receive questions and concerns about recovery offers.

This alert provides seven tips for how to spot and avoid fraudulent “recovery” scams. In an accompanying resource, FINRA offers information about legitimate ways to attempt to recover funds or be compensated for losses.

While recovery scams can take many forms, investors who have contacted FINRA from abroad report a similar series of tactics:

Urgent correspondence and high-pressure calls are received from official-sounding organizations that claim falsely to be working closely with the U.S. government.

In a number of cases, the correspondents and callers impersonate registered securities professionals and brokerage firms. In some instances, they go so far as to falsely use the name of a real person or firm that is registered with FINRA—and some will even encourage investors to research their names on FINRA BrokerCheck in an attempt to bolster credibility and build trust.

Once contact is made with the investor and the investor expresses interest, a series of official-looking documents are sent that assure the investor that money is waiting in an account and can be recovered for a fee.

Real-life example:

One international caller received a series of emails and phone calls from individuals who claimed to be associated with a number of important-sounding institutions including “Beacon Hill Regulatory Trade Commission” and the “Federal Financial Regulatory Board” (neither organization exists). The caller received a document describing a “regulatory guarantee,” purportedly signed by FINRA’s CEO, entitling him to funds associated with a previous petroleum private placement investment he had made (no such documents are ever sent by FINRA or other securities regulators). The caller was told that funds had been placed in an account and would be released to him if he paid the amount stated on an official-looking invoice. The fee would remove a “restricted title” on shares in his original private placement investment.

Seven Tips

If you find yourself in contact with someone offering to help you recover lost capital, use these tips to help you avoid suffering additional losses:

Proceed with caution. Be extremely skeptical of a purported U.S. firm reaching across the globe offering to recover funds on your behalf, especially if the firm claims to be a regulatory organization, law firm or U.S. brokerage firm. If you choose to contact a firm that claims to be registered with FINRA, do so using the contact information found on Page 1 of the firm’s full BrokerCheck report, not a number provided by the organization that contacted you. Posing as a legitimate securities firm, regulator or government agency is a tried and true tactic of fraudsters designed to build credibility. It is often a first step in a series of tactics designed to culminate in the payment of money to the scammers.

Do some research. Do an internet search of the organizations or individuals who contact you. Also search the type of offer you are being pitched and tactics used. Do so before you send any money. You may turn up red flags, or find that consumer protection, regulatory or law enforcement organizations have identified your situation as a potential fraud.

Consider your history. Realize that a previous purchase of speculative securities that lost money, or an earlier fraud, makes you a more likely candidate for additional scams, including follow-on frauds. Lists of previous victims are often recirculated. It is common for scammers to “go back to the well” and try to take more money from a previous victim.

Know the tricks fraudsters use. On its MoneySmart website, the Australian Securities & Investments Commission cautions investors to be aware of follow-up (or recovery) scam tactics. These include offers to: (1) swap your investment for another to recover losses; (2) buy your shares back at a premium (provided you pay an administration or other fee); or (3) recover your losses for a fee described as a tax, deposit or refundable insurance bond. FINRA’s website includes numerous “tricks of the trade,” including the influence tactics and persuasion techniques cons tend to use, along with ways to avoid becoming victimized. And the United Kingdom’s Financial Conduct Authority provides additional tips related to avoiding scams, including recovery scams.

Don’t send money by wire transfer. Fraudsters often push to have funds sent by wire transfer. When you wire money, it can go anywhere in the world, and you can’t get it back. In general, unless the person is well known to you (a relative, for instance) don’t send money by wire transfer, and treat requests to do so with caution.

Call your national securities regulator before sending any money. Visit the website of the International Organization of Securities Commissions (IOSCO) to find contact information for the national securities regulator in your country. In the U.S., contact the SEC or FINRA.

Learn About Legitimate Avenues for Recovery of Investment Losses. All investments carry some degree of risk, including risk of loss, even of all their value, if market conditions sour. But if you believe you have been treated unfairly, FINRA, other regulators and the courts have mechanisms to help you recover assets or receive compensation.

If you suspect fraud, you can file a complaint using FINRA’s online Investor Complaint Center or call FINRA at (240) 386-4357. Filing a complaint is something investors can do on their own. Think twice if someone offers to help you file an investor complaint with any securities regulator—FINRA, the Securities and Exchange Commission or your state securities regulator—for a fee.

Recovery of Investment Losses

If you have suffered losses and believe you may be a victim of investment fraud, please call the securities attorneys of The White Law Group at 888-637-5510 for a free consultation.

This information is provided by The White Law Group, a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida. For more information on The White Law Group, visit http://whitesecuritieslaw.com.