Oct. 23, 2019
Updated Mar. 27, 2020
The SEC’s Office of Investor Education and Advocacy (OIEA) is issuing this Investor Alert to warn investors about phony Certificates of Deposit (CDs) promoted through internet advertising and “spoofed” websites – websites that mimic the actual sites of legitimate financial institutions. Investors should be extremely cautious when purchasing CDs from sites found only through internet searches.
“Spoofed” websites – often using URL addresses similar to those of legitimate firms’ websites, or using legitimate-sounding names and URLs – may be used to trick investors into buying bogus CDs. Spoofed websites selling fake CDs often have red flags of fraud. They may:
- Offer interest rates higher than you can find at any other financial institution, with no penalties for early withdrawals;
- Promote only CDs and no other financial products, such as banking or brokerage accounts, loans, or commercial banking services;
- Require high minimum deposits, often $200,000 or more;
- Direct potential investors to wire funds to an account located outside the U.S., or to a U.S.-based account that has a different name than the financial institution claiming to sell the CD;
- Claim that the spoofed financial institution is a Federal Deposit Insurance Corporation (FDIC) member and that deposits are FDIC-insured; and
- Identify “clearing partners” that they claim are registered with the SEC.
In SEC v Sotnikov, the SEC charged defendants with fraud for allegedly participating in a scheme offering fake CDs to investors through “spoofed” websites of actual financial firms. The “spoofed” websites allegedly used domain names similar to real firms; falsely claimed to be FDIC, FINRA, SIPC, or New York Stock Exchange members; and falsely stated that the deposits were FDIC-insured. According to the SEC’s complaint, when investors searched online for CDs with high rates, the spoofed websites appeared at the top of their search results. The SEC alleges that when investors called the phone number on the spoofed websites, they reached a fake account executive who asked investors to provide an email address. The fake account executives then allegedly emailed investors instructing them to wire funds to purported “clearing” partners. These alleged clearing partners were entities used to launder and misappropriate investor funds. According to the SEC, investors have lost at least $26 million.
Be Skeptical and Ask Questions
If you are considering an investment in CDs, conduct internet searches for the financial institution to see if you find any search results other than the website initially identified. Call the financial institution using a telephone number found somewhere other than the suspect website to determine the legitimacy of the investment opportunity.
If the website claims the CDs are FDIC insured, verify the financial institution by using the FDIC’s BankFind tool – https://research.fdic.gov/bankfind/ – or call the FDIC to verify at 877-ASKFDIC (877-275-3342). Make certain the name of the financial institution claiming to provide the CDs is exactly the same and not just similar to a firm verified by the FDIC.
If the website claims the CDs are offered by a credit union, verify the financial institution by using the National Credit Union Administration’s (NCUA) “Research a Credit Union” webpage – https://mapping.ncua.gov/ResearchCreditUnion.aspx – or call the NCUA’s Consumer Assistance Center at 800-755-1030.
If a website provides a name and a CRD number of a broker-dealer or an employee of a broker-dealer, use FINRA’s BrokerCheck to check whether the address provided in FINRA’s BrokerCheck matches the address provided on the website.
You can also check out the information with an unbiased source such as the SEC’s Office of Investor Education and Advocacy or your state securities regulator. Our short publication called Ask Questions discusses many of the other questions you should ask of anyone who wants you to make an investment.
Visit Investor.gov, the SEC’s website for individual investors.
Report possible securities fraud to the SEC.
Follow OIEA on Twitter @SEC_Investor_Ed.
Like OIEA on Facebook at facebook.com/secinvestoreducation.
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.