On March 15, 2024, the SEC’s Office of Investor Education and Advocacy issued anupdated Investor Alert to warn about fraudsters sending investors fake Form 4 filings as part of a scam.
Fraudsters are increasingly targeting investors through deceptive schemes involving fabricated Form 4 filings. These filings, intended for disclosures by corporate insiders (directors, officers, and major shareholders exceeding 10% ownership), are misused to create a veneer of legitimacy for fraudulent transactions.
The scam typically unfolds through unsolicited emails impersonating trusted entities like brokers, investment advisors, or even regulatory bodies. These emails congratulate the recipient on a recent stock purchase and attach a seemingly official Form 4 document. This fabricated document bolsters the scammer’s claim and establishes a false sense of legitimacy.
The deceptive tactics fall into two main categories:
- Fictitious Purchase: In some cases, the “purchase” itself is entirely fabricated. The scammer may have already misappropriated the investor’s funds under the guise of an investment. They then leverage the fake Form 4 to mask the theft by presenting a record of the non-existent transaction.
- Hidden Fees: Alternatively, the email might exploit the fabricated Form 4 to claim the recipient already owns shares. The scammer then demands “taxes or fees” to recover purportedly lost profits or unlock the ability to trade these fictitious holdings. These fees serve no purpose other than enriching the perpetrator.
It’s crucial to understand the true purpose of Form 4 filings. These documents are disclosure mechanisms, not confirmations of personal investment activity. Standard investors are not required to file Form 4s.
Verifying Filings and Protecting Yourself
The SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system provides a means to verify the authenticity of Form 4 filings. If you receive a Form 4 claiming to be filed on your behalf, you can search EDGAR to confirm its legitimacy.
By exercising caution with unsolicited emails and verifying information through legitimate channels like EDGAR, investors can safeguard themselves from falling victim to these deceptive Form 4 investment scams.
Red Flags for Identifying Form 4 Investment Scams
- Misinterpreted Trade Confirmations: The SEC does not function as a brokerage firm and therefore does not issue trade confirmations. When you purchase a security through a legitimate U.S.-registered broker-dealer, you’ll receive a confirmation statement directly from the broker, not the SEC.
- Independent Verification is Mandatory: Prior to initiating any business relationship with an investment professional, conduct a comprehensive background investigation and verify their registration status. Investor.gov provides a freely accessible tool to confirm the background and registration of brokerage firms and individual financial professionals. Additionally, consider contacting either your state’s securities regulator or, for international investors, the relevant financial regulatory body in the jurisdiction where the broker operates.
- Deceptive Online Brokerages: Fraudsters can construct seemingly legitimate online brokerage websites. These facades may employ professional aesthetics, persuasive pitches, and prompt communication to deceive potential investors. Even if an individual claims registered status, independent verification through recognized channels remains paramount. A brief investment of time in verifying credentials can prevent significant financial losses. Utilize the firm’s Client Relationship Summary (Form CRS) to locate verified contact information.
- Scrutinize All Communication Channels: Maintain a critical eye towards all forms of communication, encompassing phone calls, voicemails, text messages, social media messages, email, physical mail, and certificates. This vigilance should be applied even if the communication appears to originate from the SEC. Establish the sender’s legitimacy prior to disclosing any personal information. Phishing attempts impersonating the SEC are a prevalent tactic. The SEC exclusively utilizes official communication channels; unofficial email addresses like “[email protected]” (a previously compromised domain) should raise red flags. Remain cautious of similar-looking email addresses attempting to mimic official SEC communication.
- Resist High-Pressure Sales Tactics: Investment scams frequently involve pressuring investors into remitting dubious “fees” or taxes under the pretense of unlocking access to their funds. This tactic is a textbook example of an advance fee scam. Refrain from sending money for any questionable charges.
By adopting a risk-averse approach and prioritizing independent verification through established channels, investors can significantly mitigate the risk of falling victim to these deceptive tactics. A cautious and discerning approach is paramount for safeguarding your financial assets.
Blowing the Whistle on Fake Form 4 Filings
If you know of a Fake Form 4 scam, and your information leads to a successful enforcement action resulting in monetary sanctions exceeding $1 million, you may be eligible for an award under the SEC Whistleblower Program. Your information must not already be known to the SEC, and must be submitted voluntarily.
To report fraud, whistleblowers and non-whistleblowers can submit any tips, complaints, and referrals (TCR) to the SEC on their own. However, due to the complex nature of these investigations, we suggest hiring an SEC whistleblower attorney who can help you navigate the process. If you’re seeking an award, they will help maximize your chances at receiving one, and can also help protect you from retaliation.
