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January 01, 2003 at 02:00 AM
Identity theft, byproduct of an information age rife with accessibility, is the nation’s fastest growing white-collar crime, according to the Federal Bureau of Investigation. How serious a problem this is became clear in November, when three men in New York were charged with orchestrating the largest identity-theft scheme in U.S. history.
Authorities say the caper began when a computer software company employee gave a co-conspirator passwords and codes needed for downloading consumer credit reports. In precisely this fashion, thousands of Americans have literally lost control of their credit card and identities, landing them in financial and emotional turmoil.
“News like that is a harsh reminder of the downside of living in a digital world,” says Kip Gregory, a marketing expert in Washington who helps advisors use desktop tools and the Internet in their practices. “It leaves us all feeling exposed and vulnerable.” Especially vulnerable as “natural targets” for identity theft and various types of business scams are high-net-worth consumers, according to Nick Peck, principal at Gryphon Investigations, an Armonk, New York-based firm that counts wealthy individuals, multinational corporations, and financial institutions among its clients.
Given the increase of identify theft and other highly sophisticated white-collar crimes, it is important for advisors to be aware how easy it is for unsuspecting clients–and some advisors–to fall prey to them. Even if an advisor isn’t the victim of fraud, he or she may face liabilities. For example, are you liable if you unwittingly steer a client into a crooked business deal, or lose clients’ data to a thief?
According to Tim Wyman, an attorney and advisor with the Center For Financial Planning Inc. in Southfield, Michigan, the onus lies upon investment advisors who, unlike brokers, have a fiduciary obligation to their clients. “Just because someone’s been ripped off doesn’t mean the advisor’s liable,” Wyman says. “But if it’s shown that the advisor didn’t do adequate due diligence, that’s a different issue.” Relevant also is whether the advisor is beholden to regulations under the Investment Advisers Act of 1940 or the National Association of Securities Dealers Inc.
In protecting clients it helps to understand how identity theft and other scams work, and what can be done to avoid them. Broaching the topic with clients, be it over a cup of coffee, or via alternate communiqu?s, can serve as an opportunity for personal client contact. Wyman notes that at his firm an increasing number of clients now ask about privacy issues. “People are more aware and saying, ‘Where is my information held? Who is going to have access to it?’ And it’s not just the normal high-net-worth client anymore, either.”
What, Me Worry?
The Identity Theft Resource Center (www.idtheftcenter.org), based in San Diego, estimates that 700,000 consumers became victims of identity theft during 2001, a trend the center says has reached epidemic proportions. The center defines identity theft as a crime in which an impostor obtains key pieces of information such as Social Security and driver’s license numbers to obtain credit, merchandise, and services in the name of the victim. The methodologies identity thieves employ vary, according to www.consumer.gov/idtheft, a Federal Trade Commission Web site.
Thieves may open a new credit card account, using a victim’s name, date of birth, and Social Security number. The thieves may call the credit issuer, and, pretending to be the victim, change the mailing address on the account. The impostors run up charges on the account, and because the bills are sent to a new address, the victim remains unaware. When the thieves don’t pay the bills, the delinquent account is reported on the victim’s credit report.
Jon Meyer, an advisor with Boeckermann, Grafstrom & Mayer Wealth Management in Minneapolis, has a client whose identity was stolen through a local bank. Fortunately, the client’s managed assets were not involved. In fact, Meyer’s firm, which custodies with Charles Schwab, moved the account promptly into Schwab’s confidential branch, limiting access to the account. Still, 10 months after the crime, Meyer says his client is having account problems daily.
Meyer has used the incident as an impetus to step up his efforts to get his clients to guard their identities. For example, he drafted letters to be sent out to clients on their birth dates, providing addresses for various credit bureaus. Clients then can forward the letters to receive credit reports in order to double-check information on file.
Criminals can obtain personal data without actually stealing in-house data, credit cards, or documents, let alone breaking into anyone’s home, warns the U.S. Department of Justice. For example, in public places criminals may engage in “shoulder surfing”–watching as you punch in your telephone calling card number or credit card number, or listening in on your conversation while you give your credit-card number to a hotel or rental car company. Some criminals also engage in “Dumpster diving,” searching for copies of checks or credit card or bank statements.
Whether your own identity or those of clients have been purloined, a good starting point for tips on preventing identity theft is www.consumer.gov/idtheft. The site includes sections on how to minimize theft risks, what victims should do, and how to file a complaint.
