AG HOLDERS SAYS JUSTICE STILL LOOKING AT BANKS THAT AID CRIMINALS IN CONSUMER SCAMS,

FROM:  U.S. JUSTICE DEPARTMENT 

Monday, June 23, 2014

Attorney General Holder Vows Justice Department Will Continue to Look at Banks That Help Payment Processors Carry out Consumer Scams, Says More Cases to Be Resolved Soon

Attorney General Eric Holder on Monday said that the Justice Department will continue to investigate financial institutions that knowingly facilitate consumer scams, or that willfully look the other way in processing such fraudulent transactions. He acknowledged that multiple investigations were ongoing in this area, and said he expected several of those cases to be resolved in the coming months.

The department resolved the first such case in April, when Four Oaks of Bank of North Carolina agreed to pay penalties and a forfeiture for knowingly processing fraudulent transactions on behalf of a pyramid scheme. The Attorney General said the department is conducting a series of similar investigations involving allegations of banks enabling third-party payment processors to “siphon billions of dollars from consumers’ bank accounts in exchange for significant fees.”

“In the months ahead, we expect to resolve other investigations involving financial institutions that chose to process transactions even though they knew the transactions were fraudulent, or willfully ignored clear evidence of fraud,” Holder added.

A transcript of the Attorney General’s video message appears below:

“The Justice Department has made it a priority to fight consumer fraud of all kinds, from lottery scams to fake business opportunities to telemarketing fraud targeting Spanish-speaking customers.  All too often, scammers and fraudulent vendors attempt to prey on vulnerable consumers by using sophisticated systems to commit crimes.  But these fraudsters often can’t act alone.  In many cases, they need access to the banking system to pilfer money from their victims.  They frequently use third-party payment processers as intermediaries to route payments through financial institutions.  And in some cases, these financial institutions – rather than working diligently to protect customers’ hard-earned savings – have knowingly facilitated fraud against their customers or consciously chosen to look the other way.

“We at the Justice Department are determined to stop these illegal and unacceptable practices. While we will not target businesses operating within the bounds of the law, and we have no interest in pursuing or discouraging lawful conduct, our Consumer Protection Branch in the Civil Division is leading a range of investigations into banks that illegally enable businesses to siphon billions of dollars from consumers’ bank accounts in exchange for significant fees.

“In April, for example, the Department of Justice reached a settlement with Four Oaks Bank of North Carolina.  This institution permitted a third-party payment processor, which the bank knew was processing transactions reported as fraudulent, to originate $2.4 billion in debit transactions in exchange for over $850,000 in fees paid to the bank.  As a result of our investigation, a federal court has entered an order requiring Four Oaks to pay penalties and forfeiture totaling more than a million dollars and to implement reforms that will prevent this kind of rampant fraud in the future.

“In North Carolina and elsewhere, the Justice Department’s efforts are sending a clear message that such activities are irresponsible.  And they will not be tolerated.  In the months ahead, we expect to resolve other investigations involving financial institutions that chose to process transactions even though they knew the transactions were fraudulent, or willfully ignored clear evidence of fraud.

“The goal of these investigations is quite simple: to protect consumers from scam artists and collaborating institutions – in every circumstance and industry.  In the days ahead, the Justice Department will keep moving forward – guided by the facts and the law – to eliminate fraud targeting consumers while mitigating any impact on institutions not under investigation.  We must enforce the law against both the fraudsters who prey on consumers and the financial institutions who choose to allow these crimes to occur.  When we uncover evidence that financial institutions are knowingly assisting fraudsters, deliberately ignoring evidence of fraud, or intentionally disregarding obligations under federal law – we will not hesitate to act.  We will hold them accountable.  And we will never waver in our determination to protect honest, hardworking Americans from those who put their financial security in peril.”

SEC ISSUES INVESTOR ALERT FOR AFFINITY FRAUD

FROM:   U.S. SECURITIES AND EXCHANGE COMMISSION

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud, a type of investment scam that preys upon members of identifiable groups, such as religious or ethnic communities or the elderly. 

What is Affinity Fraud? 

Affinity fraud almost always involves either a fake investment or an investment where the fraudster lies about important details (such as the risk of loss, the track record of the investment, or the background of the promoter of the scheme). Many affinity frauds are Ponzi or pyramid schemes, where money given to the promoter by new investors is paid to earlier investors to create the illusion that the so-called investment is successful. This tricks new investors into investing in the scheme, and lulls existing investors into believing their investments are safe. In reality, even if there really is an actual investment, the investment typically makes little or no profit. The fraudster simply takes new investors’ money for the fraudster’s own personal use, often using some of it to pay off existing investors who may be growing suspicious. Eventually, when the supply of investor money dries up and current investors demand to be paid, the scheme collapses and investors discover that most or all of their money is gone. 

How Does Affinity Fraud Work? 

Fraudsters who carry out affinity scams frequently are (or pretend to be) members of the group they are trying to defraud. The group could be a religious group, such as a particular denomination or church. It could be an ethnic group or an immigrant community. It could be a racial minority. It could be members of a particular workforce – even members of the military have been targets of these frauds. Fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings. 

At its core, affinity fraud exploits the trust and friendship that exist in groups of people who have something in common. Fraudsters use a number of methods to get access to the group. A common way is by enlisting respected leaders from within the group to spread the word about the scheme. Those leaders may not realize the “investment” is actually a scam, and they may become unwitting victims of the fraud themselves. 

Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue legal remedies. Instead, they try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.

How to Avoid Affinity Fraud

Here are a few tips to help you avoid becoming a victim of an affinity fraud scam.

• Even if you know the person making the investment offer, be sure to research the person’s background, as well as the investment itself – no matter how trustworthy the person who brings the investment opportunity to your attention seems to be. Be aware that the person telling you about the investment may have been fooled into believing that the investment is legitimate when it is not. 
• Never make an investment based solely on the recommendation of a member of an organization or group to which you belong. This is especially true if the recommendation is made online. An investment pitch made through an online group of which you are a member, or on a chat room or bulletin board catered to an interest you have, may be a fraud.
• Do not fall for investments that promise spectacular profits or “guaranteed” returns. Similarly, be extremely leery of any investment that is said to have no risks. Very few investments are risk-free. Promises of quick and high profits, with little or no risk, are classic warning signs of fraud. 
• Be skeptical of any investment opportunity that you can’t get in writing. Fraudsters often avoid putting things in writing. Avoid an investment if you are told they do not have time to put in writing the particulars about the investment. You should also be suspicious if you are told to keep the investment opportunity confidential or a secret. 
• Don’t be pressured or rushed into buying an investment before you have a chance to research the “opportunity.” Just because someone you know made money, or claims to have made money, doesn’t mean you will, too. Be especially skeptical of investments that are pitched as “once-in-a-lifetime” opportunities, particularly when the salesperson bases the recommendation on “inside” or confidential information. 
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