State securities regulators have disrupted 220 fraudulent schemes related to the coronavirus pandemic in the largest coordinated enforcement initiative they’ve undertaken, their umbrella organization announced Wednesday.
The effort has been conducted by the North American Securities Administrators Association COVID-19 Task Force and has involved 111 investigators from 44 jurisdictions in the United States, Canada and Mexico. The task force, formed in April, has identified 244 fraudulent schemes, 154 of which were investment-related.
“We aim to put con artists on notice that state and provincial securities regulators are taking swift and effective actions to protect investors from their schemes,” Christopher Gerold, chief of the New Jersey Securities Bureau and NASAA president, said in a press conference on Zoom.
The worst may be yet to come. Gerold anticipates another wave of rip-offs as medical breakthroughs regarding vaccines are announced. “We may just be seeing the tip of the iceberg,” he said.
Much of the fraudulent activity has occurred online. Computer forensics specialists on the task force have identified more than 200,000 virus-related internet domain names, most of which were created in February. Those could be activated to target investors, Gerold said.
The online nature of the threat has caused NASAA to launch its most technologically savvy enforcement sweep, state regulators said.
“State and provincial securities regulators and the task force are combining sophisticated investigative techniques and just plain old-fashioned shoe leather detective work to secure evidence of illegal and fraudulent conduct,” said Joseph Borg, director of the Alabama Securities Commission and chair of the NASAA enforcement section. “In some situations, these techniques have included the use of undercover tactics.”
The perpetrators of pandemic fraud “are often preying on fear, incorporating anxiety into their pitches by promoting safe returns independent of the stock market and independent of the economy,” said Joe Rotunda, director of enforcement for the Texas State Securities Board and vice chair of the NASAA enforcement section.
The schemes tend to focus on “trendy assets," such as cryptocurrencies, foreign exchange trading and artificial intelligence, Rotunda said. Promoters also promise their investments will produce “cash flow,” which may appeal to unemployed retail investors.
The NASAA investigations show “most, if not all” of the promoters of fraudulent investment products fail to comply with securities rules, such as registration and licensing, Borg said.
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