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Indiana Securities Division

Securities Division > Indiana MoneyWise > News You Can Use > FINRA ARS Alert FINRA Warns of Fake Email Auction-Rate "Phishing" Scam

by Stan Rosenberg
(originally published in the Wall Street Journal on Oct. 5, 2009)

NEW YORK (Dow Jones)--The Financial Industry Regulatory Authority (Finra) on Monday warned of a "phishing" scam that uses fake Finra emails to promise investors compensation from auction-rate securities (ARS) settlements in exchange for personal information.

The fake emails are made to appear as if they originated from Finra and use language from a recent Finra press release announcing ARS settlements, Finra said.

The emails state that the recipient is due $1.5 million, regardless of the amount of their ARS investment or loss. The email then "phishes" for personal information by asking for the investor's occupation, address and phone number.

Finra, along with the Securities and Exchange Commission and state securities regulators, has announced final settlements with numerous brokerage firms relating to the sale of ARS.

The market for state and local government auction-rate securities virtually collapsed last year. The securities are long-term debt that trades like short-term instruments because of auctions held at intervals running from daily to every 35 days.

Many of the firms sold them to investors as if they were cash equivalents with the belief that they would back them should any of the auctions failed. Instead, they walked away from them, sending the market into a freefall from which it never recovered.

Finra does not contact investors directly to advise them of the settlements. Instead, brokerage firms contact eligible investors, generally via letter, with an offer to repurchase ARS that the firm sold to them.

"Finra is very concerned that these fraudulent emails will ensnare investors in an identity theft - or some other type of - scam," said John Gannon, Finra's senior vice president for investor education.

Investors should know that no legitimate organization will email them requesting personal information, Gannon said.

Finra, the largest independent regulator for U.S. securities firms, is asking any investor who receives a "phishing" email relating to an ARS settlement to forward that email to Finra's Office of the Whistleblower at It said investors who receive any ARS email should neither respond to it nor click through any links contained in the email.