A federally-chartered agency is warning investors about a new Internet scam in which imposters pose as brokerage firms and steal up to $20,000 at a time from consumers. The Securities Investor Protection Corporation (SIPC) detailed the fraud, which involves an authentic-looking Web site, complete with logos that indicate the firm is a member of the agency. The scam is being called "brokerage ID theft."
Potential victims are urged to check the company's references at the SIPC's Web site. Since the con artists are actually impersonating a legitimate firm, their credentials on the Web site check out.
"This is an urgent warning that investors and brokerage firms need to be on their guard," said Stephen Harbeck, president of the SIPC, an agency designed to protect investors. Reports of the scam have trickled in for about a year, but have increased dramatically in the past 10 days, he said. While most victims have been outside the United States, a number of domestic victims have come forward recently, he said.
In one insidious flavor of the scam, investors who own thinly-traded, nearly-worthless stocks are contacted by an alleged broker offering to buy the shares at a premium. An unnamed third party is seeking to gain a controlling number of shares in the company, the shareholder is told. Victims are then asked to cough up a "good faith deposit" prior to the sale. The deposits are often sent via wire transfer to the con artists, so the lost money is unrecoverable, said Robert Webster, spokesman for the North American Securities Administrators Association.
Authorities believe the con artists have contact information for the penny share owners because they may have sold the nearly worthless stocks to the investors in the first place, making the consumers double victims.
"There is no quick regulatory fix that can solve this problem. The solution here is public awareness ... Investors need to protect themselves," Webster said. "They need to ask: Why would someone pay a premium for my dormant investment? Why would a person need to put up deposit to sell a security?"
The con artists are trying to take "relatively modest" amounts from consumers, Webster said, between $5,000 and $20,000 with each scam. The agency doesn't know exactly how many consumers have been hit.
It wouldn't release the names of the brokerage firms that had been impersonated, saying that could impact an ongoing investigation.
Identity theft has become an explosive problem for American consumers. Earlier this year, the Federal Trade Commission released a study indicating about 10 million consumers had been hit by the crime last year, suggesting more people are victims of identity theft than any other crime in the United States. Corporate identity theft has received less attention, but it is also a growing concern. Criminals using corporate tax ID numbers can hijack company accounts just as they steal money from consumer bank accounts. Or, thanks to the ease of creating Web pages, they can steal a company's image to give consumers a false sense of security, then run their scam.
"Businesses are now increasingly facing this ... threat," Webster said.
There are over 6,500 brokerages that are members of the Securities Investor Protection Corporation, Webster said, and many don't normally deal directly with consumers. Some don't even have Web sites. That makes the firms an easy mark for con artists, since the company wouldn't necessarily be looking on the Internet to see if it's been impersonated.
It's easier to steal the name of someone who doesn't do business with the public," he said. "Firms should search the Internet for misuse of their corporate name.
According to the agency, there have been victims in the United States, Canada, Norway, Sweden, Denmark, the Netherlands, South Africa, Singapore and Australia. Webster urged anyone contacted by the con artists -- even if they don't fall for the scam -- to contact state securities regulators or the North American Securities Administrators Association at NASAA.org.
The Internet has turned from an Internet superhighway to a road of ruin for some," he said. "But (con artists) only succeed when a potential victim suspends good judgement. Our message today is if the deal can't be beat, hit delete."