Safeguarding From Fraudulent Activity

At any given time, natural disasters are occurring in various locations around the country. These types of situations are ripe for fraudulent activities. Bad actors surface around every corner, and it is imperative that your broker dealer does not become a victim of these criminals. The Financial Industry Regulatory Authority (“FINRA”) defines a bad actors as someone “who seeks to evade regulatory requirements and harm investors for their own personal gain.”

A bad actor can show up in many ways and forms. Several red flags include:

  • Someone within your broker dealer may receive an email requesting a large sum of money to be withdrawn from an account in order to cover disaster damages,
  • Money movement requests that are unusual and irregular,
  • The firm may be solicited to purchase fraudulent investments that supposedly increases the firm’s profits but also helps victims,
  • And aggressive solicitation of investments are all red flags that broker dealers should be diligently monitoring.

This is where proper procedures, training, and attention to detail are vital in protecting your broker dealer. Should anyone try to withdraw unusually large sums of money or solicit products that are “too good to be true”, ask questions and be skeptical. Review your customer’s suitability paperwork. Gather further information to determine whether a request is legitimate or the result of a bad actor trying to take advantage of a situation. It is times like these when the broker dealer’s supervision and compliance standards are put to the ultimate test. The firm’s CEO and CCO should always remain vigilant and continuously monitor the broker dealers’ activities.

If your broker dealer suspects that there is a potentially fraudulent activity happening, any information should be provided to the Securities and Exchange Commission (“SEC”). It only takes one bad actor to create a major fallout in the financial industry, and the results can be crimpling.

Protecting your clients and customers’ investments and assets is your broker dealer’s goal. If you would like to discuss tightening up your firm’s policies and procedures and other compliance related items, please reach out to SCM here to discuss your broker dealer’s concerns and needs and allow our team of experienced compliance professionals to help protect your firm from bad actors. Bad actors are out there; do not allow them to penetrate your broker dealer.