Investors have enjoyed a remarkable bull market over the past three years, with the S&P 500 returning 87%. That’s a tough benchmark for anyone to beat. Fraudsters, though, have found a way. Now, the Securities and Exchange Commission is creating a new working group aimed at engineering a market correction in retail focused investment scams.
Americans reported losing more than $8.6 billion to online investment fraud last year, more than two and a half times the $3.3 billion reported in 2022, according to the FBI. Cryptocurrency scams accounted for $7.2 billion of those losses.
The SEC is responsible for policing investment fraud, so a new SEC working group devoted to the problem is reassuring, though it also raises an obvious question about what the agency wasn’t already doing, or was supposed to be doing. The agency announced the group on July 7 in a five-paragraph release that said it would use “data and technology” to find possible wrongdoing and build cases, but offered few details about what would actually change. With reported fraud losses soaring, it’s hard to argue with the idea. It’s also hard not to wonder why a new group is needed now.
The Retail Fraud Working Group will focus on investment scams, fraud involving securities offerings, pump-and-dump schemes, market manipulation and misconduct by brokers and investment advisers. It will also work with other regulators and educate investors about fraud, according to the press release.
That coordination could prove important when it comes to crypto. The SEC can pursue crypto scams when they involve investments covered by federal securities laws. But not every cryptocurrency falls under the agency’s authority, and some cases may require action from other federal or state regulators.
The announcement is part of SEC Chairman Paul Atkins’ effort to return the agency’s enforcement work to what he has called its core mission of protecting investors.
“The working group could generate cases in any area significantly impacting retail investors,” an SEC spokesperson says.
That broad mandate could allow the group to examine new or growing threats. It could also cover misconduct that doesn’t resemble a traditional investment scam.
For example, brokers and investment advisers can harm customers by failing to disclose important information, charging excessive fees or recommending investments that aren’t right for them, says Brenda Hamilton, founder and managing partner of Boca Raton, Florida-based Hamilton & Associates Law Group.