Protecting North Carolina's Seniors:
Taking on Tax Season Scams and other Financial Fraud
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The
IRS
and
NC Department of Revenue
extending the tax filing deadline to July 15th is great news for harried folks getting their returns ready, but the extension of tax season could also create more opportunities for tax-related scams and government impostors.
NC Secretary of State Elaine Marshall had some timely advice for steering clear of fraud as she joined an expert panel for an AARP North Carolina tele-town hall to help the state's seniors recognize and report tax-related scams and other financial fraud, including investment scams.
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NC Secretary of State Offers Tips to Avoid COVID-19 Related Investment Scams
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NC Secretary of State Elaine Marshall is cautioning investors that the ongoing Coronavirus pandemic will likely spark a surge of investment fraud.
“Sadly, scam artists will seek to exploit rising concerns about COVID-19 to draw people into investment traps,” warned Marshall. “Fraudsters often use the day's headlines in their pitches, so expect to see them prey on the fear surrounding the unfolding Coronavirus pandemic and recent economic developments to promote sham investments.”
Bad actors may develop schemes falsely purporting to raise capital for companies manufacturing surgical masks and gowns, producing ventilators, distributing small-molecule drugs and other preventative pharmaceuticals, or manufacturing vaccines and miracle cures.
Scammers also will seek to take advantage of concerns with the volatility in the securities markets to promote “safe” investments with “guaranteed returns” including investments tied to gold, silver and other commodities; oil and gas; and real estate. Investors also can expect to see schemes touting quickly earned guaranteed returns targeting seniors worried about economic disruptions and losses to their retirement portfolios.
“From guarantees of high returns without risk to promises of a miracle cures, if it sounds too good to be true, it probably is,” warned Secretary Marshall. “I urge North Carolinians to follow these tips to help protect your financial and physical health as you navigate these uncertain times.”
Investors are encouraged to call the NC Investor Hotline at (800) 688-4507 or email us at
secdiv@sosnc.gov
before signing over money in any investment opportunity. If you suspect an investment opportunity is fraudulent, you may report it at
www.sosnc.gov
.
You can also find a wealth of investor education material at
www.sosnc.gov/divisions/securities
.
Schemes to Watch for:
Private placements and off-market securities.
Scammers will take advantage of concerns with the regulated securities market to promote off-market private deals. These schemes pose a threat to retail investors because private securities transactions are not subject to review by federal or state regulators. Retail investors must continue to investigate before they invest in private offerings and independently verify the facts for themselves.
Gold, silver and other commodities.
Scammers may also take advantage of the decline in the public securities markets by selling fraudulent investments in gold, silver and other commodities not tied to the stock market. These assets are often promoted as “safe” or “guaranteed” means of hedging against inflation and mitigating systematic risks. However, scammers may conceal hidden fees and mark-ups, and the illiquidity of the assets that may prevent retail investors from selling the assets for fair market value. There are no “can’t miss” opportunities.
Recovery schemes.
Retail investors should be wary of buy-low sell-high recovery schemes. For example, scammers will begin promoting investments tied to oil and gas, encouraging investors to purchase working or direct interests now so they can recognize significant gains after the price of oil recovers. Scammers will also begin selling equity at a discount, promising the value of the investments will significantly increase when the markets strengthen. Never lose sight of the risks associated with any prediction of future performance and remember that market gains may not correlate with the profitability of their investments.
Get-rich-quick schemes.
Scammers will capitalize on the increased unemployment rate with false promises of quick guaranteed returns that can be used to pay for rent, utilities or other living expenses.
Replacement and swap schemes.
Investors should be wary of any unlicensed person encouraging them to liquidate their investments and use the proceeds to invest in more stable, more profitable products. Investors may pay considerable fees when liquidating investments, and the new products often fail to provide the promised stability or profitability. Advisors may need to be registered before promoting these transactions and legally required to disclose hidden fees, mark-ups and other costs.
Real estate schemes.
Real estate investments may be appealing because the real estate market has been strong and low interest rates have increased demand. Scammers often promote these schemes as safe and secure, claiming real estate can be sold and the proceeds can be used to cover any losses. However, real estate investments present significant risks, and changes to the economy and the real estate market may negatively impact the performance of these products.
How to Protect Yourself:
The NC Secretary of State’s Securities Division offers this guidance to help investors avoid investment scams:
Ask before you invest.
Investors in North Carolina should call the NC Investor Hotline at (800) 688-4507 or email us at
secdiv@sosnc.gov
to find out if the salesperson and the investment opportunity itself are properly registered. Investors also can check the
SEC’s Investment Adviser Public Disclosure
database and
FINRA’s BrokerCheck
. Avoid doing business with anyone who is not properly licensed. If you suspect fraud, please report it to us at
www.sosnc.gov
.
Don’t get hooked by a phishing scam.
Phishing scams may be perpetrated by those claiming an association with the Centers for Disease Control and Prevention, the World Health Organization, or by individuals claiming to offer medical advice or services. Watch out for con artists offering “opportunities” in research and development. These scams may even be perpetrated by people impersonating government personnel, spoofing their email addresses and encouraging victims to click links or open malicious attachments. These emails may look real and sound good, but any unsolicited emails with attachments and web links may be directing you to dangerous websites and malicious attachments that can steal information from your computer, lock it up for ransom, or steal your identity. When in doubt, don’t click.
There are no miracle cures.
Scientists and medical professionals have yet to discover a medical breakthrough or develop a vaccine or cure for COVID-19. Don’t fall for online pharmacies claiming to offer vaccines and don’t send money to anyone claiming they can prevent COVID-19, through a vaccine or other preventive medicine.
Avoid fraudulent charity schemes.
White-collar criminals may pose as charities soliciting money for those affected by COVID-19. Fake charities will frequently use sound alike names that mimic established charities. Rather than clicking on the links or responding to the email addresses or phone numbers provided in a text, email or social media post, do an internet search to find the charity’s website and reach out to them directly. A link in an unsolicited email could send you to an impostor site. Give generously but wisely to make sure your help is going to those who need it.
Be wary of schemes tied to government assistance or economic relief.
The federal government may send checks to the public as part of an economic stimulus effort. It will not, however, require the prepayment of fees, taxes on the income, the advance payment of a processing fee or any other type of charge. Anyone who demands prepayment will almost certainly steal your money. And don’t give out or verify any personal information. Government officials already have your information. No federal or state government agency will call you and ask for personal information.
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Teleworking Cybersecurity Best Practices
With organizations across the globe shifting to telework due to concerns about the spread of COVID-19, the danger of lapses in cybersecurity is escalating. The
National Cyber Security Alliance
(
staysafeonline.org
) is hosting a free
webinar
on Tuesday, April 7 with experts from
multinational cybersecurity and defense company Trend Micro
discussing cybersecurity best practices for remote workers and what this new paradigm means for the small and medium-sized business community.
Register below and and tune in to learn what you need to know to keep yourself cybersecure as you telework, or what business owners need to communicate to their teleworking staffers to protect their organization’s sensitive assets.
Guest Speakers:
- Daniel Eliot (moderator), Director of Education & Strategic Initiatives, National Cyber Security Alliance
- Ed Cabrera, Chief Security Officer, Trend Micro
- Greg Young, Vice President, Cybersecurity, Trend Micro
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Financial Peace of Mind in the Age of Coronavirus
FINRA recently issued this timely advice for investors:
The headlines are hard to ignore. Coronavirus (COVID-19)-related cases and deaths are increasing around the globe, supply chains have been interrupted, financial markets are experiencing historic volatility, and businesses are questioning how they will weather the storm.
When it feels like so many things are out of our control, sometimes the best thing to do is focus on the things that are. Here are five questions to ask for some financial peace of mind in the age of coronavirus.
1. Do I have an emergency savings fund?
Some people have the flexibility to continue to work amid restrictions related to a global pandemic, but others do not. In addition, some industries like airlines and hotels are experiencing the impacts and restrictions of coronavirus more than others. What happens if your company downsizes or you are an hourly or gig worker unable to work for a period of time?
Do you have savings in place to tide you over? FINRA has always encouraged investors to make an
emergency fund
a priority because it can help manage both financial and emotional stress in uncertain times. Experts recommend setting aside the equivalent of 3 to 6 months of living expenses—although for many Americans that might be too daunting a goal. Having even a few hundred dollars in "rainy day" savings can help. Be sure to put the money in a liquid (easily accessible) account, such as a savings account at a bank or credit union that provides some return on your deposit, or a certificate of deposit (CD) if you are looking for a slightly higher interest rate.
2. Am I diversified?
One of the best ways to manage risk is to
diversify your investments
. When you diversify, you aim to manage different types of risk by spreading out your investments. You can diversify both within and among different asset classes, and within particular asset subclasses. There is no simple answer to how many different investments and the different types you should own to diversify your portfolio broadly enough to manage investment risk. If it seems like your portfolio is taking a harder hit than you're comfortable absorbing given your long-term goals and investment strategy, consider whether, how and when to make adjustments to help create a balance more in line with your risk tolerance and more resilient to market fluctuations. Talking to a licensed
investment professional
can help.
3. Should I be worried about market volatility?
We all know that markets can go up and down. But when the down part of the equation happens—or when markets experience sustained periods of volatility—investors often get nervous. Think of the market being tested as an opportunity to test your investment strategy and whether you are comfortable with the risk levels of your portfolio. While watching a market shift can be uncomfortable in the short term, it also presents opportunities for the long term, like checking your portfolio and risk exposure, and adding new investments that are now cheaper to buy. Worries about
market volatility
or a correction are usually not among the best reasons to make significant changes to your long-term financial plan. Stay the course. Don't let fear drive you to decisions you might regret in the long term, like trying to time the market.
4. What is my investment firm doing?
FINRA rules require brokerage firms to have a business continuity plan in place that addresses what will happen in the event of an emergency. In light of the coronavirus outbreak, FINRA published a
reminder
to firms that such plans must be sufficiently flexible to address a wide range of possible effects in the event of a pandemic in the United States.
If you are trying to reach your investment firm and are having trouble, understand that firms may be experiencing increased customer call volumes or online account usage during significant market movements. Firm business continuity plans should be designed to ensure customer access to funds and securities during volatile markets. Be on the lookout for communications from your firm or check the website to see how they are handling these issues, and whom you may contact concerning the execution of trades, your accounts, and access to funds or securities. Contact your firm with any concerns or questions and, if you have additional questions, contact FINRA's Securities Helpline at 844-57-HELPS (844-574-3577).
5. Am I prepared to say NO to potential coronavirus stock scams?
Investors should be wary of promotional materials and "fake news" touting stocks of companies that claim to protect against the spread of, or provide a cure for, coronavirus. As FINRA has
warned
in the past, dramatic news coverage of viral outbreaks can be an opportunity for scammers to pump inaccurate information into the marketplace to capitalize on fears of a potential pandemic, and try to manipulate markets and investors. Don't fall for the hype. And check out a recent
Investor Alert
from the SEC's Office of Investor Education and Advocacy warning investors about investment frauds involving claims that a company's products or services will be used to help stop the coronavirus outbreak.
If you're suspicious about an offer or if you think the claims might be exaggerated or misleading, please contact us. If you suspect that you or someone you know has been taken in by a scam,
send a tip
or
file a complaint
with FINRA and/or with the NC Secretary of State
Securities Division
.
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One Call Could Save Your Life Savings!
Is that individual offering you an investment opportunity licensed to sell securities in North Carolina? Is the investment opportunity itself registered? Know before you sign!
While registration in and of itself is no guarantee against fraud, not being registered is a very big red warning flag.
We urge you to take five minutes to call our NC Investor Hotline at 1-800-688-4507 to see if the person you have been dealing with – perhaps even for years – is properly registered and/or has a disciplinary history. You can also check to see if the actual investment itself is properly registered.
Pick up the phone and call us. You owe it to yourself and your family to check. And please also consider sharing the information in this newsletter with
YOUR
contacts or your social networks. Doing so will help keep your friends and loved ones safe, too. More information can be found at
https://www.sosnc.gov/divisions/securities/for_investors
.
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Ransomware
On March 8, 2020, North Carolinians were greeted with this headline from
WRAL.com
: “Russian ransomware attacks Durham city, county governments.”
Forbes.com
later reported, “Two ‘Russian’ Ransomware Attacks Take Down North Carolina City and County Government Systems.” How did this happen, and could it happen to you? Are you prepared? How do you protect your systems from attack?
The vast majority of ransomware attacks involve “social engineering,” or the art of tricking a person into divulging sensitive information. The attacker sends a target what appears to be a legitimate email, typically disguised as coming from a known or trusted person or entity. The message may appear friendly, helpful or frightening. Either way, the target is enticed into clicking a link or opening an attachment that will launch the malware, thereby giving the attacker control of the device and all the files stored on it, and a passageway into networks that device is connected to which can also be compromised.
The best way to protect your system is to treat all email as suspicious. Remember: It
does not matter
if you are running an anti-virus application. Your protection from ransomware relies
solely
on not clicking links or opening attachments until you are absolutely certain who they are from and what they are. Verify the actual sender BEFORE opening any email. The sender’s display name can be faked, or “spoofed.” While each email application is different, and mobile versions function differently from desktop versions, they all allow the recipient to reveal the sender’s true email address. If the real email address seems odd, or the domain name—the part after the “@” symbol—doesn’t seem right, is misspelled or uses character substitutions, treat the email as suspicious. If you have any doubts, contact the purported sender using a method YOU know to be correct to verify the legitimacy of the message before opening it. (For more tips, see this alert by the US Department of Homeland Security:
https://www.us-cert.gov/Ransomware
.)
You can also protect yourself and/or your business by ensuring you have a robust plan for backing up your critical data. Consider following the
3-2-1 Backup Rule
: Make at least three copies of your data, storing two backup copies on different storage media, and keeping at least one of the copies offsite. Remember that any backup source connected to your network will also be compromised in a ransomware attack. Another reason for having backups is purely practical: hard drives can fail without warning for reasons completely unrelated to a malicious attack. (For more information about the 3-2-1 Backup Rule, see the following alert by the US Department of Homeland Security:
https://www.us-cert.gov/sites/default/files/publications/data_backup_options.pdf
.)
Remembering not to click links or open attachments without first verifying their legitimacy and having a robust data backup plan will help ensure that you and/or your business can recover quickly and with minimal loss once your system has been disinfected.
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SEC Small Business Advocate to Host Virtual Coffee Breaks Discussing Small Business Capital Raising
The SEC’s
Office of the Advocate for Small Business Capital Formation
is hosting a series of
virtual coffee breaks
to engage with the public to discuss updates, trends, and perspectives on how COVID-19 is impacting raising capital. Each virtual coffee break will spotlight what’s happening in a particular area of the market, incorporating feedback from entrepreneurs, investors, and other market participants. Businesses and investors are also encouraged to reach out to the Office online at
www.sec.gov/oasb
, via email at
smallbusiness@sec.gov
, or by phone at 202.551.5407 for support with their capital raising needs. The first virtual coffee break will occur on
Friday, April 3, at 11:00
(ET). For more information, visit their
webpage
.
SEC Extends Conditional Exemptions From Reporting and Proxy Delivery Requirements for Public Companies, Funds, and Investment Advisers Affected By COVID-19
On March 25, the Securities and Exchange Commission
announced
that it is extending the filing periods covered by its previously enacted conditional reporting relief for certain public company filing obligations under the federal securities laws, and that it is also extending regulatory relief previously provided to funds and investment advisers whose operations may be affected by COVID-19. In addition, the SEC’s Division of Corporation Finance issued today its current views regarding disclosure considerations and other securities law matters related to COVID-19.
“Health and safety continue to be our first priority,” said SEC Chairman Jay Clayton. “These actions provide temporary, targeted relief to issuers, investment funds and investment advisers affected by COVID-19. At the same time, we encourage public companies to provide current and forward-looking information to their investors and, in these uncertain times, companies are reminded that they can take steps to avail themselves of the safe harbor in Section 21E of the Exchange Act for forward-looking statements.”
Investment Fund and Adviser Relief
The Commission also issued orders (
https://www.sec.gov/rules/other/2020/ia-5469.pdf
and
https://www.sec.gov/rules/other/2020/ic-33824.pdf
) that would provide certain investment funds and investment advisers with additional time with respect to holding in-person board meetings and meeting certain filing and delivery requirements, as applicable. Today’s Orders supersede and extend the filing periods covered by the Commission’s Original Orders of March 13, 2020. Among other conditions, entities must notify the Division staff and/or investors, as applicable, of the intent to rely on the relief, but generally no longer need to describe why they are relying on the order or estimate a date by which the required action will occur. The time periods for relief are described in the Orders. The Commission may provide extensions to the time period for the relief, with any additional conditions it deems appropriate, or provide additional relief as circumstances warrant. Firms and financial professionals are encouraged to contact SEC staff with questions or matters of particular concern.
Pandemic-Related Business Continuity Planning, Guidance and Regulatory Relief
Due to the recent outbreak of
coronavirus disease (COVID-19)
, FINRA has issued
Regulatory Notice 20-08
reminding member firms to consider pandemic-related
business continuity planning
,
including whether their business continuity plans (BCPs) are sufficiently flexible to address a wide range of possible effects in the event of a pandemic in the United States. Each member firm is also encouraged to review its BCP to consider pandemic preparedness and to review its emergency contacts to ensure that FINRA has a reliable means of contacting the firm. This Notice also provides pandemic-related guidance and regulatory relief to member firms from some requirements. As coronavirus-related risks decrease, member firms should expect to return to meeting any regulatory obligations for which relief has been provided.
New Research: Female Investors Lag Behind Male Counterparts in Investment Knowledge and Confidence
Female investors lag behind their male counterparts when it comes to investment knowledge and confidence, according to new
research
conducted by the FINRA Investor Education Foundation (FINRA Foundation) and the George Washington University School of Business' Global Financial Literacy Excellence Center (GFLEC).
Male and female investors answered a
10-question quiz
measuring investment knowledge and understanding of U.S. markets. Only 8% of female investors (compared with 21% of male investors) answered eight questions or more correctly, demonstrating high investment knowledge. Furthermore, 40% of female investors (but only 26% of male investors) answered fewer than three questions correctly, which indicated low investment knowledge.
"The recent market volatility related to the global spread of the coronavirus (COVID-19) sheds a spotlight on the importance of understanding investments and markets and why raising the investment knowledge of both men and women is essential," said Gerri Walsh, President of the FINRA Foundation and FINRA's Senior Vice President of Investor Education. "The data show that male and female investors who have a high level of investment knowledge are more likely to have positive outcomes—like planning for retirement, feeling less anxious about their finances, and saving for emergencies."
Beyond investment knowledge, the research reveals that:
- Female investors are less likely to be confident about: long-term opportunities in the U.S. financial markets, their own investment knowledge and making investment decisions;
- Women investors were more apt to answer "don't know" to investment knowledge questions than their male counterparts; and
- While nearly half of all men feel comfortable making investment decisions, only 34% of women feel the same.
"There is a notable difference in investment confidence between male and female investors and this difference persists even when education, income, and investment wealth are taken into account," said Dr. Andrea Hasler, Assistant Research Professor of Financial Literacy of GFLEC. "Our research shows that there is a strong link between investment confidence and knowledge, so investment confidence may influence the investment knowledge gender gap."
"Promoting efforts that work towards increasing both confidence and knowledge is one key solution to preparing investors for their financial decision-making," Dr. Hasler added.
NASAA Urges SEC Not to Move Forward with Proposal to Expand Access to High-Risk Private Offerings Without Added Protections
State securities regulators are
urging
the Securities and Exchange Commission (SEC) not to move forward with its proposal to expand access to high-risk private securities offerings to individual investors, and particularly to seniors living on fixed incomes from retirement savings, without additional investor protections and oversight.
In a comment letter to the SEC, the North American Securities Administrators Association (NASAA) said the agency’s proposal (
Release No. 33-10734
) to amend its definition of “accredited investors” falls short of increasing the protections and regulatory oversight Main Street investors would need if the proposal is approved as currently drafted. NASAA’s letter is available online
here
.
“The proposal is a deregulatory effort that is singularly focused on expanding the private markets while showing little regard for its potential adverse effects on retail investors and the public markets,” wrote Christopher W. Gerold, NASAA President and Chief of the New Jersey Bureau of Securities. “The Commission should not move forward with the proposal as currently presented.”
Gerold noted that although the proposed expansions of accredited investor status regarding certain organizations or entities are not unreasonable, the SEC’s proposal as drafted “widely misses the mark” in its proposed treatment of individual investors. Before any final rulemaking, NASAA suggests that the Commission should gather data on private offerings to individual investors to better understand the types of companies and investors that reasonably should be dealing with one another.
NASAA also states that the SEC can and should raise the income and net worth thresholds for individual investors who are considered as “accredited investors.” Notably, these thresholds have not been adjusted to account for inflation since first put in place in 1982. Over nearly 40 years since, inflation has significantly deteriorated these thresholds leading to a dramatic increase in the percentage of U.S. households that qualify as accredited investors. In 1982, for example approximately 1.6 percent of American households qualified to be offered high-risk private securities, compared to about 13 percent (or 16 million) today.
“It is implausible that 16 million American households currently have both the financial sophistication and the capacity to bear the kinds of investment losses that courts and prior Commissions have considered essential prerequisites for participation in private offerings,” Gerold wrote.
NASAA is particularly concerned that many elderly Americans may meet current income and net worth thresholds solely through asset accumulation and savings, which they need for retirement and which should not be exposed to illiquid, high-risk private offerings. “The proposal does nothing to protect these investors,” Gerold wrote.
Calling the current standards “feeble” and “in desperate need of modernization,” NASAA said the thresholds should be raised significantly, modified to exclude agricultural and retirement assets, and indexed to inflation going forward in order to continue serving the interests of retail investor protection. “The SEC has considered implementing many of these changes in the past; it is high time the Commission did so,” Gerold wrote.
FINRA: Stock Up on Information Before Buying Stock
Nearly one-third of investors view market volatility as an opportunity to purchase more stock at a favorable price. If you are among those investors, make sure you know what you are buying. There are well over 20,000 companies whose shares trade either on a U.S. exchange or in over-the-counter markets, each with a unique ticker symbol. But with so many companies and trading symbols, there is ample room for confusion—and good reason to carefully research any investment before making a purchase. [Editor's note: As a recent example, the SEC had to suspend trading of Zoom Technologies because investors were confusing it with Zoom Video (see
CNBC.com article
).] Click
here
for more information that can help you understand what you are buying and avoid potentially costly mix-ups or mistakes.
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- On December 10, 2019, the U.S. Attorney’s Office for the District of New Jersey announced the arrest of three men in connection with a cryptocurrency mining scheme that defrauded investors of $722 million. The North Carolina Secretary of State's Securities Division conducted an investigation into a fraudulent cryptocurrency mining scheme known as the BitClub Network. Due to the multi-jurisdictional complexity of this scheme, the Division's investigation was coordinated with the United States Attorney's Office in New Jersey as well as the Internal Revenue Service Criminal Investigation Division (IRS-CI). According to the indictment, from April 2014 through December 2019, the defendants operated BitClub Network, a fraudulent scheme that solicited money from investors in exchange for shares of purported cryptocurrency mining pools and rewarded investors for recruiting new investors. For more information, please see the U.S. Attorney’s press release. On May 30, 2018, the Securities Division issued an investor alert regarding BitClub Network and its activities. Click here to read the alert.
- On November 21, 2019, United States Attorney Robert J. Higdon, Jr. announced that a federal grand jury had returned an Indictment charging ANTHONY WAYNE MARCH, 48, of Wake Forest, North Carolina, with one count of Securities Fraud; three counts of Wire Fraud; one count of Bankruptcy Fraud; one count of Obstruction of Bankruptcy Case; three counts of False Oaths; and four counts of Money Laundering. The indictment follows an investigation by the NC Secretary of State’s Securities Division and the IRS Criminal Investigation Division. For more information, click here.
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NC Department of the Secretary of State
Securities Division
Investor Protection & Education Services
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