The Miami Herald recently exposed a scandal involving more than 4000 brokers. They had committed more than $85 million in mortgage fraud. These brokers fabricated bank statements, fake signatures, and letters of employment and payslips to gain access to borrowers’ money. They also were involved in a culture of blame-shifting among banks, and they set up straw buyers to steal money.
Fraud brokers use fake documents to lure investors into investment schemes. The scammers use the names of legitimate institutions such as the Securities Investor Protection Corporation, Federal Deposit Insurance Corporation, and the New York Stock Exchange to lure investors. In this scam, the scammers target elderly people. The fake broker-dealers also send bogus emails claiming to be registered with the Financial Industry Regulatory Authority.
Fraudulent real estate brokers often downplay the risk of a property’s vulnerability to flood damage. In addition, they may make other fraudulent claims regarding the home’s size, construction, or celebrity ownership. The scams may even involve identity theft or credit card fraud.
When a broker pushes financial schemes, they may use false facts and statements to lure investors. Such claims, which often include price predictions and unrealistic guaranties, should be avoided. Brokers have a duty to disclose all material facts to their clients, and should not make promises they cannot keep.
One common scam involves an impersonation of a registered investment professional. The fraudster creates a fictitious FINRA BrokerCheck report and emails it to potential clients. The fake BrokerCheck report uses the registered investment professional’s name, CRD number, and FINRA registration number. The scammer then sends out other documents, including a photo of a driver’s license.
A fraud broker may also apply for a fake insurance policy in the name of a genuine insurance company. Then, after collecting the premium payments from the victim, they cancel the policy without the victim’s knowledge. In this way, they are able to trick unsuspecting “customers” into believing they are paying less than competitors. They may also advertise cheap insurance policies on social media platforms or messaging apps, and tout that their insurance is cheaper than competitors.
Lack of regulation
The lack of regulation of fraud brokers has contributed to the spread of many fraud schemes. While corporate compliance programs may help prevent future scams, they are not sufficient to prevent existing scams. For example, in the case of Epsilon, the company was required to commit to its compliance code but not to enact a specific fraud prevention policy. KBM, meanwhile, left the implementation of a compliance policy program to its brokers’ discretion.
A lack of regulation also contributes to the high cost of legal defenses for data brokers. It has been argued that the data brokers were not adequately screened by regulators and therefore overrode them in pursuit of profit. Yet, these companies knew that they were working with fraudsters and ignored the controls.
Client funds at risk
Fraud brokers use a variety of tactics to steal clients’ funds. Typically, they target clients by posting in online discussion groups. The victims are then asked to wire funds to the brokers, often to pay for “processing fees” or purported taxes. The funds are never used for the underlying investment. Instead, the perpetrators quickly abscond with the victims’ money.
Fraud brokers often engage in illegal activities, including selling investments that are not real. They may also engage in “selling away” activities without the consent of their brokerage firm.