Securities regulators in Colorado and nationally are warning consumers about a rise in financial fraud in wake of the pandemic.
“It is not surprising. Every good crisis creates an opportunity for fraud,” said Chris Perrin, counsel to the head of enforcement at FINRA, an industry regulatory body, during the Colorado Financial Symposium held online Friday.
Several companies pitching a way to protect or cure people from COVID-19 have sprung up, often with scant proof to back their claims, and have sought money from investors. Firms have used scare tactics to push precious metals at inflated prices to investors, many of them older. And with more people spending more time at home and online, cases of cyber fraud have shot up.
“Scammers go where victims are, and we are all online. Fortunately, enforcement is online too,” said Tung Chan, who took over as Colorado’s securities commissioner in late March.
One way scammers have duped investors is through bogus popup messages that warn people something is wrong with their brokerage accounts. People call in or visit an imposter website and provide their account information, only to have their accounts liquidated and the proceeds siphoned off.
“It has caused significant losses for individuals and many seniors,” Chan said.
Chan said securities regulators in the state have also seen a rise in schemes promoting precious metals. Usually the pitches play off a sense of urgency and fears about the stock market. Colorado joined with regulators in 11 other states last month to shut down Metals.com, alleging it took $185 million from 1,600 mostly senior investors. The company pitched a message of economic collapse that would result in a government takeover of capital markets, one where only gold and silver would hold their value, Chan said.
Although not necessarily fraud, securities regulators noted that people with more time on their hands due to quarantine measures turned to actively trade stocks. Zero-cost commissions are also contributing to the trend. Overactive trading can increase the risk investors make a bad move or lose money.
Tom Piccone, associate regional director with the U.S. Securities and Exchange Commission in Denver, said brokerage firms and advisers need to make sure their clients are aware of the fees they are incurring and that the materials shared with customers and investors are fair and balanced.
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