Taking Advantage of a Crisis

By Carmen Lelli

Earlier in the year as the COVID-19 Pandemic began, the Securities and Exchange Commission (SEC) began warning the financial industry of COVID-19 pandemic-related disclosures fraud, and disruptions of the financial markets. Now it seems that the SEC was right on the money with their warnings. The special Task Force formed by the SEC has been charged with monitoring the markets for frauds, elicit schemes, and other misconduct related to COVID-19 affecting investors. Subsequently, the SEC began bringing securities fraud claims against issuers, filing at least three complaints in federal court against microcap and penny stock issuers that allege securities fraud. Making false and misleading statements in disclosures to the general public can cause serious financial losses to unsuspecting investors. On the plus side, the SEC was proactive in their attempt to protect the general public from bad actors in this time of crisis. 

Source: www.pymnts.com

Over the past month the Financial Industry Regulatory Authority (FINRA) said that they have seen a significant uptick in market manipulation alerts and fraud reports during the COVID-19 pandemic. FINRA’s Executive Vice President of Market Regulation and Transparency Services, Thomas Gira, was speaking on a webcast hosted by the Securities Industry and Financial Market Association (SIFMA) when he said that during this pandemic there has been a 200% spike in market manipulation alerts related to best execution, pricing issues and what he referred to as “micromanipulation” which includes wash sales, spoofing and layering. Gira also discussed that FINRA is currently focusing on zero-commission business models. While zero-commissions is not by itself a violation of the rules, the regulator wants to ensure that customers are still receiving best execution. The agency has launched a sweep exam specifically for zero-commissions and is looking at a large variety of firms.

Source:  www.thefallingdarkness.com

?Since the beginning of the pandemic, the SEC has filed complaints against companies and individuals for various crimes. On January 24th the agency announced that it charged a husband and wife over a $1 billion Ponzi-Scheme. On February 18th in another press release the SEC announced that it had charged a Real Estate company with defrauding retail investors. On March 10th the Commission announced that it had halted a fraudulent offering by a Florida based investment adviser. On April 28th, in another press release, the SEC announced that the agency had charged a company and its CEO for a COVID-19 scam, and in a May 22nd press release the SEC announced that it had shut down a fraudulent investment adviser that was targeting senior citizens. That’s just a few of the incidents that have happened. It’s obvious that bad actors are using this crisis to take advantage of unsuspecting people. We’re seeing fraud outside of the financial industry as well, with everything from fake testing for COVID-19 to bank fraud. 

As the old saying goes, “never let a good crisis go to waste,” and bad actors are certainly out there taking advantage of unsuspecting people as much as possible this year. Luckily, in the financial industry, the regulators are on top of the situation and were proactive in their efforts to stop the bad actors in their tracks. If it weren’t for that, we may have ended up with some serious situations reminiscent of the  Bernie Madoff case where people lost millions of dollars. 

Sources: Law360, Wilmerhale, U.S. Securities and Exchange Commission