A recent enforcement action by the U.S. Securities and Exchange Commission (SEC) highlights once again the need for investors to do their research on investment offerings and heed any warning signs that an investment may not be legitimate.
In January, the SEC charged Allen C. Giltman of Irvine, California, in fraudulent internet Certificates of Deposit (CD) offerings which resulted in approximately 100 investors losing at least $40 million dollars.1 These investors were primarily seniors who invested their retirement savings in Giltman’s fraudulent CD offerings.
Giltman is a former registered investment professional who was part of a larger group running this fraudulent scheme. The SEC had charged another alleged participant in the scheme, Denis Sotnikov, back in March of 2020.
The group which ran the scheme from 2012 to October 2020, set up at least 150 fraudulent websites over that time period and these websites resembled websites being operated by reputable financial institutions.2 They purchased internet ads which directed potential investors to these fraudulent websites.
The websites used a variety of ways to make investors believe they were the websites of legitimate financial institutions, including: “(a) displaying the actual names and logos of real financial institutions; (b) purporting that the institutions were members of or regulated by the Federal Deposit Insurance Corporation (FDIC), Financial Industry Regulatory Authority (FINRA), the Securities Investor Protection Corporation, or New York Stock Exchange; (c) claiming that deposits made to the institutions associated with the fraudulent websites were FDIC-insured; and (d) using FINRA or FDIC member identification numbers issued to real financial institutions and real FINRA broker-dealers.”3 The CDs offered on these fraudulent websites were offered at higher than average rates of return.4
When potential investors called a phone number listed on the website or emailed for more information, they were contacted by Giltman, who falsely identified himself using the name and FINRA Central Registration Depository number of an actual FINRA broker-dealer. Giltman would provide the investors with applications and instructions for wiring money to domestic or foreign bank accounts to purchase the CDs. None of the victims received a CD after wiring the funds.5
Several years ago, the SEC Office of Investor Education and Advocacy issued an Investor Alert warning of CD scams that are offered on the internet using “spoofed” websites, which are websites which mimic actual sites of legitimate financial institutions.6 According to the SEC, some warning signs that a website offer may not be legitimate include the following:
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- If the CD is being offered at a higher interest rate than is being offered by other financial institution
- If there are no penalties for early withdrawal of the CD
- If CDs are the only financial product the website offers
- If the required minimum deposit is $200,000 or more
- If you are being asked to wire funds to an account located outside the United States
- If you are being asked to wire funds to an account which has a different name than the institution claiming to sell you the CD
- If the institution claiming to sell you the CD has to use a “clearing partner,” even if they claim that clearing partner is registered with the SEC
- If the institution claims they are a Federal Deposit Insurance Corporation (FDIC) member but you do your research at https://banks.data.fdic.gov/bankfind-suite/bankfind and they are not listed
If you see an investment offer on a website, especially if the solicitation appears to offer returns on your investment that are greater than most other institutions are offering, it pays to not act quickly, as usually instructed in the ads. Take your time. Do your research. Evaluate what you have learned and if you have any doubts, don’t invest.
Our Securities Law Office in Detroit has been fighting for investor’s rights for more than 20 years. Investments scams, financial schemes and broker misconduct continue to prey on the vulnerable.
If you have questions about your investments or your broker’s management of your account, please contact our Michigan Securities Law Firm and speak with a Securities attorney today.
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1,5 SEC Charges Additional Defendant in Phony Certificates of Deposit Scam, 1/5/2022
Link: https://www.sec.gov/news/press-release/2022-1
2,3 US Attorney’s Office, District of New Jersey, California Man Admits Role in $50 Million Wire and Securities Fraud Scheme, 1/5/2022
Link: https://www.justice.gov/usao-nj/pr/california-man-admits-role-50-million-wire-and-securities-fraud-scheme
4 US District Court District of New Jersey, SEC vs. Allen C. Giltman, Complaint, 1/5/2022
Link: https://www.sec.gov/litigation/complaints/2022/comp-pr2022-1.pdf
6 Beware of Spoofed Websites Offering Phony Certificates of Deposit – Investor Alert, 10/23/2019
Link: https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/beware