Advances in AI technology are contributing to an unprecedented rise in investment fraud.
Americans are losing more to investment schemes than any other type of fraud, with $3.82 billion stolen in 2022, according to data from the Federal Trade Commission. That represents an increase of $1.67 billion, or 128%, over 2021.
Fraudsters are developing new scams that exploit recent advances in artificial intelligence technology. For example, one woman in Canada lost $750,000 in a scammer who used a “voice clone” of billionaire Elon Musk to direct her to a website where she could buy shares of his stock for $250.
Similar scams are employing “deep fakes,” which use a form of AI called deep learning to generate fake videos of real people. Scammers create a deep fake of a corporate executive and send it to investors, said Chase Carlson, founder of Carlson Law, a firm specializing in investment fraud. In a recent report that analyzed data from the FBI and the Federal Trade Commission, Carlson cited AI schemes as one of the five most common types of investment fraud in 2023.
To avoid these schemes, investors should always meet someone in person before investing, and if they have to rely on phone calls, they should listen carefully as voice cloning can lack human inflection, Carlson said.
“And if it involves a celebrity or sounds too good to be true, it usually is,” he said.
While there aren’t any documented cases of these type of frauds hitting wealth management firms yet, they are likely coming soon, said Mark Hurley, CEO of cybersecurity firm Digital Privacy & Protection. AI is creating a problem that even the best cybersecurity practices will struggle to prevent.
Scammers can easily clone an advisor's voice — for example, by calling when the office is closed and recording a voicemail greeting — and use that to call clients. ChatGPT is also making it easier to generate more convincing phishing emails, Hurley said.
“The real challenge is they have to interact with clients,” he said. “Because of AI software, now no one is sure who is talking to who.”
In addition to financial losses, these attacks can expose clients to identity theft because advisors have access to so much of their clients' personal information, Hurley added.
In addition to AI, cryptocurrency continues to be a significant driver of investment fraud. A record $2.57 billion was lost to crypto investing scams in 2022, according to the report from Carlson Law.
People between the ages of 30 and 49 are most often targeted for investment scams, Carlson reported. However, seniors are increasingly the victims of digital attacks and lost almost $1 billion to investment fraud last year.
The good news for the wealth management industry is that despite the increase in overall investment fraud, the number of claims against financial advisors fell from 744 in 2021 to 699 in 2022, according to the Financial Industry Regulatory Authority Inc.
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“It was a third party scam,” said the attorney representing the claimants.
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