NEW YORK -- Scammers targeting investors are using fears of a recession and high inflation to put new wrappers on their ruses, but the underlying scams are still pretty much the same, says Andrew Hartnett. He is president of the North American Securities Administrators Association, a group devoted to protecting investors. He is also deputy commissioner in the Iowa Insurance Division.
Hartnett recently told The Associated Press that the key, as always, is to be wary of anything that sounds too good to be true. He also said scammers prey heavily on people feeling lonely, something that’s becoming more common. The conversation has been edited for length and clarity.
Q: How much are investment scammers using high inflation and recession worries to their advantage?
A: We’re definitely seeing that as part of the pitch or the way that the scammer creates fear in the person they’re pitching.
One of the traditional scam types that we see is an investment that offers a guaranteed rate of return. Not just a guaranteed rate of return but an abnormally high rate of return, like 15%. So you can see how those two things fit together really well. If somebody is feeling that eggs are too expensive, and somebody pitches them on a guaranteed rate of return of 12%, it’s really easy for that to seem pretty appealing.
Q: Are there new types of scams? Or are these current worries just putting new wrappers on age-old scams?
A: Maybe there’s something like a digital asset scam where because the blockchain is new, you can argue that is a new kind that we’re seeing. But even there … the traditional guaranteed rates of return, the creation of fear in someone with the news of the day and the creation of fear of missing out and pressure to act … we find that just about all of our scams have those kinds of characteristics and that worries about inflation are really just a new wrapper.
Q: Your organization highlighted digital asset fraud as a top investor threat for this year, but has the comedown in crypto prices cooled that off?
A: Even as prices have come down for some of those crypto assets, the sense of something new and something that people don’t understand has allowed those scams to continue in our experience.
In some ways, we see an increasing prevalence of using digital assets as part of a fairly normal scam. What I mean by that is: Maybe the payment is made by a digital asset. Or, in terms of proving your amazing trading record, now sometimes we’re seeing fake websites with digital asset trading returns that demonstrate unrealistic returns.
Q: Day trading has gotten more popular since the pandemic, and people are getting investing advice on social media. Are people savvier and less prone to fall for fraud than before?
A: The research suggests they think they know more than they do but are also really interested in being educated on it and learning more. That to me is the really hopeful part of this.
I can’t say that I have seen any drop in our complaint activity or anything like that that would suggest everybody has sort of come into the market and understands it and we can all feel sanguine about that.
The other thing I would highlight is there’s all sorts of misinformation out there. As a general rule, financial advisors have to be registered, and most products have to be registered. If we’re leaving the scams out and dealing with the registered part of the market, there’s a lot of information that can be gotten that isn’t on Reddit or Instagram.
Q: Are seniors still the biggest targets for scams? Are millennials getting more attention?
A: Generally speaking, we continue to see older investors as the number one demographic for our complaints.
There has been recent research that suggests that one of the things that makes one more susceptible to falling victim to one of these scams is loneliness. With the way society is changing after the pandemic and in light of technology, it’s not just older investors feeling that loneliness. There’s a susceptibility that goes across all those age groups.
Q: Any easy suggestions for investors to protect themselves?
A: If you have an account at a broker/dealer or an investment adviser, create a trusted contact. That’s a great thing to do because it offers the financial professional an avenue if something seems awry. It doesn’t give them the power to trade in your account, but it does give them someone else to talk to when they’re concerned.
Sometimes that concern could be as little as: “I can’t reach this person,” and the trusted contact can say that you’re away on vacation.
Q: Anything else?
A: The worst scams that we see, almost universally, involve unregistered people. One of the best ways to protect yourself is to work with a registered financial professional. You can work with state securities regulators to verify registration status.
Q: How are scammers making first contact with victims? Cold calls? Internet?
A: Everywhere. We see it where people are playing Words with Friends online. Someone plays a couple of times, then it devolves into a little bit of a romance scam and then all of a sudden into a pitch about how you’re getting all these great returns from a trader and get passed off to a WhatsApp number.
Scammers are trying to access people everywhere they are, on all their electronic devices, in person. It’s really everywhere.
