What Types of Financial Fraud Will Increase During the COVID-19 Pandemic?

by | Apr 14, 2020 | Fraud, White Collar Crimes

The Texas Securities Board (TSB) has issued an investor alert and guidance to protect the public from white-collar criminals and fraudsters from exploiting the unprecedented COVID-19 pandemic for financial gain.

Fraudsters will use recent events to lure investors into scams. For example, there have been a number of warnings relating to claims that a company’s products or services will be used to cure the COVID-19 crisis. Some internet promotions have been circulating the internet, including on social media, making claims that the products or services of publicly traded companies can prevent or cure the current COVID-19 pandemic, and that the stock of these companies will drastically increase in value as a result.

The Texas Securities Board listed in its investor alert the following possible financial frauds that could arise out of the COVID-19 crisis:

COVID-19 schemes.   Schemes that falsely claim to raise capital for companies manufacturing personal protective equipment, producing ventilators and other medical equipment, or manufacturing vaccines and miracle cures. Such schemes often appear legitimate because they draw upon current news, medical reports and social and political developments.

Private placements and off-market securities.  Scammers may take advantage of concerns with the regulated securities market to promote off-market private deals.

Gold, silver and other commodities.  Fraudsters may also take advantage of the devaluation of the public securities markets by selling fraudulent investments in gold, silver and other commodities that are not tied to the stock market.  However, scammers may conceal hidden fees and mark-ups, and the illiquidity of the assets may prevent retail investors from selling the assets for fair market value.

Recovery schemes.  Buy-low sell-high recovery schemes. For example, scammers may begin selling equity at a discount, promising the value of the investments will significantly increase when the markets strengthen.

Get-rich-quick schemes. Scammers may falsely tout their ability to quickly earn guaranteed returns.  Many retirees and senior citizens became prey to such schemes as scammers falsely claim they can quickly and safely recoup any losses to their retirement portfolios.

Phishing scams.  Phishing scams may be perpetrated by fraudsters claiming an association with the Centers for Disease Control and Prevention (CDC) or the World Health Organization (WHO), encouraging their audience to click links or access malicious attachments.

Fraudulent charity schemes. Fraudsters may pose as charities soliciting donations for those affected by COVID-19.

Replacement and swap schemes. For example, an unlicensed person who encourages investors to liquidate their investments and use the proceeds to invest in more stable, more profitable products. Investors may pay considerable fees when liquidating the investments, and the new products often fail to provide the promised stability or profitability.

Real estate schemes.  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 severely damage the performance of these investments.

For more information regarding white-collar fraud, please contact our office.

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