Operation Broken Trust: Historic Investment Fraud Sweep

Today, the Financial Fraud Enforcement Task Force announced the conclusion of Operation Broken Trust, the largest investment fraud sweep ever conducted in the U.S.  The 231 cases in the operation involved more than 120,000 victims who lost more than $8 billion.

Operation Broken Trust—which included both criminal and civil enforcement actions that occurred from August 16 through December 1, 2010—was unveiled during a Washington, D.C. press conference attended by representatives of the agencies that make up the task force, including U.S. Attorney General Eric Holder and FBI Executive Assistant Director Shawn Henry.

The goal of the operation was two-fold:

1.To root out and expose massive investment fraud scams across the nation; and

2.To alert the public about many phony investment scams. (See sidebar below for the FBI’s prevention tips.)

Operation Broken Trust focused on scams directly targeting individual investors, rather than long-term complex corporate fraud matters. In many instances, these criminals were trusted people within their communities—sometimes neighbors, co-workers, fellow church-goers—who betrayed that trust in order to line their own pockets. And the results were often devastating, with some victims losing their life savings, their homes, their livelihoods.

Each of the cases included in the sweep involved individual investors being deceived by individuals presenting “investment opportunities” that were either completely fictitious or not structured as advertised. An overwhelming number of the cases were high-yield investment frauds and Ponzi schemes. Others involved commodities fraud, foreign exchange fraud, market manipulation (i.e., “pump-and-dump” schemes”), real estate investment fraud, business opportunity fraud, affinity fraud, and the like.

The FBI has observed a steady increase in investment frauds, in particular Ponzi and market manipulation schemes. Since January 2009, we’ve opened more than 200 Ponzi cases,  many with $20 million-plus losses. Based on our current caseload, the top five Ponzi scheme hot spots in the country are Los Angeles, New York, Dallas, Salt Lake City, and San Francisco, but keep in mind that these scams can and do happen anywhere.

We’ve had success in shutting down many and arresting those responsible, due in large part to our focus on partnerships—like our involvement in the Financial Fraud Enforcement Task Force—as well as intelligence-gathering and information-sharing efforts. And we continue to use sophisticated investigative techniques—like undercover operations to court-authorized electronic surveillance—to collect evidence in ongoing cases and to identify and stop criminals before they prey on others.

What about the victims? The FBI generally offers assistance to victims in fraud cases that fall under our jurisdiction (our partner agencies offer similar services). Our field office victim specialists can provide case status information, direct victims to organizations that can help with protecting or rebuilding credit, assist in documenting victims’ losses, help cope with stress, and even find government or community-based services for victims—especially the elderly and disabled—if their financial losses are severe.

In cases with hundreds or even thousands of victims, we can provide information using websites and toll-free phone lines. Reflecting on the importance of collaboration with our law enforcement and private sector partners in combating investment fraud, Executive Assistant Director Henry said, “Together, we are smarter. Together, we are stronger. Together, we will continue to seek out those who look to profit at the expense of the hard-working men and women of the United States of America.”

Avoiding Investment Fraud

- Be careful of any investment opportunity that makes exaggerated earnings claims, especially during a short period of time.

- Ask for written information about the investment, such as a prospectus, recent quarterly or annual reports, or an offering memorandum.

- Consult an unbiased third party, like an unconnected broker or licensed financial advisor, before investing.

- Don’t be fooled into believing an investment is safe just because someone you know is recommending it. So-called “affinity scams” are one of the favorite methods used to lure people in.

- If you feel you are being pressured into investing, don’t do it.

- Be wary of people you meet on social networking sites and in chat rooms, where investment fraud criminals have been known to troll for victims.