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Fintech Crime Report: From Growing a Beard to the Rise of 'Frankenstein' Fraud

The Securities and Exchange Commission (SEC) announced charges against a Canadian resident who allegedly created a fake identity to scam hundreds of investors out of millions of dollars with a bogus initial coin offering (ICO) scheme. The SEC complaint alleges violations to “antifraud and securities registration provisions of the federal securities laws.”

fraud 2695269 1280Boaz Manor, along with his associate, and the companies BCT Inc. SEZC and CG Blockchain Inc. were implicated in the purported scheme, according to the SEC. They are accused of raising more than $30 million from August 2017 to September 2018. In order to conceal a year-long prison sentence he served after pleading guilty to charges related to a collapsed Canadian hedge fund, Manor “darkened his hair, grew a beard, and used aliases to hide his identity” hoping to mask himself from the potential dupes, the accusation reads.

“Learning about the identity and background of the individual or individuals behind a venture is one of the first things we tell investors to do before trusting anyone with their money,” said Joseph G. Sansone, chief of the SEC’s Market Abuse Unit. “As alleged in our complaint, Manor’s brazen scheme to conceal his identity and criminal history deprived investors of essential information and allowed the defendants to take over $30 million from investors’ pockets.”

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SEC officials said Manor portrayed his associate Edith Pardo, of New Jersey, as the proprietor of his businesses, and himself an employee named “Shaun MacDonald.”

“The complaint alleges that the defendants claimed to have 20 hedge funds testing technology to record transactions on a distributed ledger or blockchain. In reality, the defendants had only sent a prototype to a dozen funds, and none of the funds used it or paid for it,” reads information from the SEC.

The U.S. Attorney’s Office for the District of New Jersey also charged Manor, who is a citizen of both Canada and Israel, as well as Pardo, who is Israeli. The SEC also aims to bar Manor and Pardo from becoming directors or officers of public companies and from future participation of securities offerings.

'Frankenstein' Fraud on the Rise, Federal Reserve Warns

A recent article from CNBC highlights what it describes as the “fastest-growing financial crime, according to the Federal Reserve, and said it is driven in part by the growth of online lending. The story cited “synthetic identity fraud,” which involves criminals making up “Frankenstein” identities completely fabricated out of thin air, rather than stealing an identity that already exists. Sometimes this takes years.

“Synthetic identities tend to be more prevalent in the United States than in other countries because identification in the United States relies heavily on static personally identifiable information (PII), including Social Security numbers (SSNs),” reads a recent Federal Reserve Report (PDF). “Although it is considered to be a new type of fraud, synthetic identity fraud existed for years in the United States before the widespread use of computers and the internet.”

It is difficult to detect and often goes unreported, according to the study. Specially, the payments ecosystem and the healthcare industry face a growing threat, it states, with consumers, businesses, government agencies and financial institutions all at risk.

“Fraudsters are more sophisticated and organized, crime rings are run as lucrative businesses, data breaches are frequent and the availability of PII on the dark web is staggering. We expect fraudsters will continue to commit this type of crime due to the lack of victims reporting fraud, difficulty in detection and high payoffs for fraudsters–compounded by increased digitization of the financial system,” concludes the report.

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