Banking & finance

NASDAQ company stung by investment fraud operation

  • 23 June 2006

The ICC Financial Investigation Bureau (FIB) has just completed an investigation of a NASDAQ-listed pharmaceutical company hit by operators of an investment fraud scam.

Because share prices can see significant flux in anticipation of new drugs being launched, pharmaceutical companies are prime targets for financial fraud.

The company in question, saw its share price sink rapidly last year after federal regulators delayed approval of a new anti-alcoholism drug.

FIB Assistant Director Jon Merrett said: “Fraud operators take advantage of businesses of this nature by approaching potential buyers claiming to have valuable insider information with respect to share price fluctuation.”

The case involved a fraudster with offices in Japan and China duping a South African customer. As is typical of financial fraud scams, the broker introduced a myriad of paperwork. One form was a lengthy new account application which was used to extract a great deal of sensitive personal and banking information from the buyer, including his investment knowledge and net worth.

Mr Merrett commented: “The theft of an individual’s banking information and personal financial details is always cause for concern, but what really caught FIB’s attention were the banking instructions used by the fraudster.”

According to FIB, the fraud operator requested that the purchaser send funds to a bank based in Cyprus, but assign the money to an account held by a totally unrelated company. FIB could find no record of this beneficiary company and noted that it was highly unusual that the funds be paid to a different company banking in an entirely different jurisdiction.

Mr Merrett added: “Our assumption is that the fraud operator may be attempting to sell shares he does not own. Employing a third party as the recipient of the funds is a tactic used to make any attempts to track the seller more difficult.”

FIB advises that when brokerage account banking instructions are provided, investors should check for anomalies between the company broking the deal and the company benefiting from the funds. Any difference between the two should be treated as suspicious, particularly if the bank account details supplied refer to a bank in a different country from the one where the business is being conducted. Discrepancies of this kind are not in themselves proof of fraud, merely an indication that further investigation may be required. Investors requiring further information or investigation services are encouraged to contact FIB.