Fraud Alert: Risk Of Fraud Significant In The Wake Of Hurricanes Harvey And IrmaPrint Article
- Posted on: Sep 20 2017
It’s an unfortunate fact of life that victims of natural disasters, such as Hurricanes Harvey and Irma, and those who try to help them, often become the targets of fraud. As the floodwaters recede and the clean-up effort begins, officials have sounded the alarm, warning victims and volunteers about this threat.
On September 4, 2017, Corey Amundson (“Amundson”), the Acting United States Attorney for the Middle District of Louisiana and head of the National Center for Disaster Fraud, highlighted the concern in an interview with NPR (here).
According to Amundson, “it starts with charity fraud, contractor fraud, emergency assistance fraud” and “evolves into program fraud” as the federal government provides financial assistance to those in need. Amundson said that these types of fraud fall into two categories: (i) impersonations – individuals impersonating FEMA inspectors, insurance inspectors and National Flood Insurance Program inspectors, and (ii) false submissions – individuals filing claims on property they do not own or with social security numbers that belong to someone else.
Amundson also noted the use of technology to defraud hurricane victims, citing identity fraud and false web domains that sound like disaster relief organizations that in reality are not as common examples.
Amundson offered the following advice to the victims of natural disasters and volunteers who are trying to help them:
- Do not respond to emails soliciting donations and do not open any email attachments or links.
- Avoid charitable organizations whose names sound familiar “but are just slightly off.”
- Only work with and donate money to known and trusted charities, and only work directly with them, not with people claiming to be working on their behalf.
- Bullying or intimidation is a red flag for fraud.
While all fraud cannot be prevented, Amundson advised people to use their “gut feelings” and “common sense,” to protect themselves from fraud. After all, as Amundson noted, “if something feels off, it probably is.”
On September 13, 2017, the Financial Industry Regulatory Authority (“FINRA”) issued a fraud alert about the risk of financial fraud in the wake of hurricanes Harvey and Irma (here). Echoing some of the things Amundson noted, FINRA warned that hurricane victims should not “be surprised” if they “receive unsolicited phone calls, emails and texts, including from messaging apps, about investments that exploit a variety of hurricane-related opportunities.”
FINRA noted that “stocks or crowdfunding investments associated with clean-up, rebuilding and breakthroughs in science and technology that purport to address current and future flood-related issues” are common forms of financial fraud.
FINRA cautioned against responding to unsolicited communications that, among other things, promise “swift and exponential growth”; mention “contracts or affiliations with federal government agencies or large, well-known companies”; use facts from respected news sources “to bolster claims” of stock increases; and use pressure tactics to secure immediate investment, such as “You must act now!”
FINRA offered the following advice to victims of natural disasters to “avoid potential scams”:
- Investigate before investing.“Never rely solely on information you receive in an unsolicited email, text message or cold call from a smooth talking “analyst” or “account executive” promoting a stock.” “Use FINRA BrokerCheck® to check registration status and additional information on investment professionals and firms.”
- Find out the identity of the sender.“Many companies and individuals that tout stock are corporate insiders or are paid to promote the stock. Look for statements (usually found in the fine print) that indicate cash payments or the receipt of stock for disseminating a report on the company.”
- Find out where the stock trades. “Most unsolicited stock recommendations involve stocks that can’t meet the listing requirements of The Nasdaq Stock Market, the New York Stock Exchange or other U.S. stock exchanges. Instead, these stocks tend to be quoted on an over-the-counter (OTC) quotation platform like the OTC Bulletin Board (OTCBB) or the OTC Link Alternative Trading System (ATS) operated by OTC Markets Group, Inc.”
“Companies that list their stocks on registered exchanges must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies quoted on the OTCBB or OTC Link generally do not have to meet any minimum listing standards (although companies quoted on the OTCBB, OTC Link’s OTCQX and OTCQB marketplaces are subject to some initial and ongoing requirements).”
- Read a company’s SEC filings. “Most public companies file reports with the SEC. Check theSEC’s EDGAR database to find out whether the company files with the SEC. Read the reports and verify any information you have heard about the company.”
Victims of natural disasters have enough to worry about. They should not have to worry about being victimized by fraudsters. Yet, they do. As FINRA noted in its alert, “fraud routinely follows on the heels of disaster.” Hurricanes Harvey and Irma “are no exception.”
While it may not be possible to prevent all types of fraud, Amundson and FINRA offer sound advice for the targets of fraud to protect themselves: use common sense, ask questions and be vigilant. By doing so, hurricane victims can protect themselves from being victimized again.