Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

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?

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