State Regulators Form COVID-19 Investment Fraud Task Force

Apr 28

The national association for state securities regulators on April 28 announced the formation of the COVID-19 Enforcement Task Force to identify and stop potential threats to investors stemming from the COVID-19 pandemic. 

The task force will work with the U.S. state and Canadian provincial securities regulators that constitute the North American Securities Administrators Association (NASAA). 

The objective of the task force, which will hold its first meeting this week, is to proactively identify COVID-19-related threats to investors, including fraudulent offerings, investment frauds, and unregistered regulated activities. 

The Texas State Securities Board on April 3 became the first state securities regulator to take action against a promoter using COVID-19 as a tactic to lure investors. The State Securities Board entered other enforcement actions to halt COVID-19-linked schemes on April 8 and April 17.

In March, the State Securities Board issued the Investor Alert, Protecting Your Financial Health in the Pandemic Era, warning of a proliferation of schemes tied to the pandemic. 

The COVID-19 task force is modeled after NASAA’s multi-state coordinated regulatory sweep to stop fraudulent cryptocurrency-related investment offerings. Texas led the NASAA cryptocurrency sweep in 2018 and concluded a second regulatory crackdown last year.

The COVID-19 initiative is being led by NASAA’s Enforcement Section and its Enforcement Technology Project Group. The task force is using online investigative techniques to identify websites and social media posts that may be offering or promoting fraudulent offerings, investment frauds, and unregistered regulated activities. 

The task force will be examining a recent spike in Internet domain names linked to the pandemic. The task force has identified as many as 200,000 coronavirus-related domains as of April 20. 

Most of these domain names appear to have been created within the past three months. Through the task force, state and provincial securities regulators will be analyzing these domains to identify those offering securities and/or investment advice and will pursue those that appear to pose a threat to investors.

"Scammers will be targeting retail investors, capitalizing on recent developments in the economy preying on concerns about the regulated securities market,” the Texas State Securities Board warned in its March Investor Alert.

“Their products and tactics will track recent economic and social trends, promising lucrative returns to retail investors concerned about their portfolios and retirement plans. Retail investors must remain vigilant to protect themselves from these schemes.”