FINRA Issues Investment Alert Targeting High-Yield CD Scams

Attorney Advising Disclaimer

FINRA issued an investment alert warning investors of "too good to be true" certificates of deposit (CD) promotions promising substantially higher-than-average interest rates and yields. With CDs generally having ridden the blanket of being a historically "low risk" investment strategy, FINRA points out that some recent e-mail and phishing frauds and scams have used the reputable CD product as a vehicle for effecting such fraudulent schemes.

Investor Alert: High-Yield CDs: Red Flags That Signal a Scam (FINRA Newsroom)

Regulators reviewed several recent instances of fraud in which scammers used sales pitches promising yields of up to 15 percent when most US banks and credit unions were offering yields of just one percent for a comparable term. The 15-percent scam additionally required investors wire funds, which allowed the fraud to take place. A similar scam used promises of exceptionally high yields in order to gather investors' personal financial information.

FINRA identified the following characteristics as red flags that may indicate a fraudulent scheme or scam:

  • Interest rates significantly higher than average;
  • Communications from e-mail addresses that do not match the financial institution, bank or firm named in the content of the e-mail;
  • E-mails with spelling and grammar errors or other inaccuracies;
  • Promotions from a sender that claims to be a US financial institution aligned with an international bank;
  • "Limited Time Only" promotions or ones aimed at "best customers," "preferred customers" or some other class requiring high minimum investments.

Additionally, upon receiving an unsolicited call, investors should not divulge personal information nor authorize any transfer of funds to an unknown person or to an unverified financial institution. If the legitimacy of such a communication is in doubt, investors may call the purportedly represented financial institution's customer service or information hotline or visit the institution's website. For institutions you are already a member of, call the phone number listed on account statements or credit/debit/ATM cards. Do not ask the caller for a call-back number as it too, may be phony.

The Federal Deposit Insurance Corporation (FDIC), which insures such investments, previously stated that CDs offering higher-than-average yields often differ from 'traditional' CDs that offer average rates and returns. For instance, index-linked CDs may mature in a matter of decades, may be associated with steeper penalties for early withdrawal while others may allow withdrawals or even sales to other investors. The performance of market-linked CDs, as the name implies, are generally tied to financial markets while structured CDs may contain additional terms, conditions and rules.

In short, these non-traditional CDs differ because they are risky and complex and this riskiness may not simply raise yield potential, it might make the product unsuitable for more conservative investors.

If you have invested with a broker or firm whose recommendations or solicitations for CDs advertising high yields has proven harmful to your investments or interests due to unforeseen and undisclosed risk or outright fraud, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

News: FINRA Issues New Investor Alert, High-Yield CDs: Red Flags That Signal a Scam (WSJ Market Watch)

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