Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

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Wed, 26 Aug 2009

Change of address fraud

Floyd Norris points to a FINRA press release about a eight year long fraud at a Citigroup brokerage office in California.

The $850,000 fraud was carried out by a sales assistant, which as Norris points out, is about as low as you can be in a brokerage office. The critical element in the fraud as detailed in the press release was to change the address of the customer (using falsified documents) so that account statements showing the unauthorized withdrawals do not reach the customer. Of course, she was also smart enough to chose customers who were unlikely to monitor their accounts regularly and notice the absence of periodic account statements.

There is one thing here that I do not understand. The best practice in the financial industry while recording a change of address is to send a confirmation of the change to the old address. I am fond of saying that responding to a change of address request with a confirmation letter to the new address is a matter of courtesy, and nothing will happen if this confirmation does not go out. But sending a confirmation to the old address is an elementary fraud precaution and under no circumstances should this fail to happen. It is the last opportunity to the customer to stop the fraud.

So did Citigroup not have a process for ensuring this standard fraud control process? Or is sending a confirmation to the old address not as well understood and practiced in the industry as it should be?

Posted at 15:28 on Wed, 26 Aug 2009     View/Post Comments (0)     permanent link