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Securities Insecurity

With a little know-how and a few pieces of personal information, enterprising crooks can get their hands on an investor's money. I should know.

March 25, 1997|JOSEPH HANANIA | Joseph Hanania, a freelance writer based in Santa Monica, is a regular contributor to The Times

But for a chance phone call to Fidelity Investments and a chance conversation with my postal carrier, I would not have discovered a recent attempt to defraud me of my life savings until the money was gone.

Until that call, I was sure that security for investors' accounts was airtight. So I was baffled when the customer service representative told me I could not make a trade because I had already sold nearly all my mutual funds. For a moment, I wondered if I had perhaps sold the position in a fit of fear as the Dow was gyrating, then forgotten what I had done.

But no. A company representative played back a few seconds of a tape in which "I" called in the sell order.

It was not my voice.

Maybe I shouldn't have been surprised. Calls to investment companies' 800 numbers are typically an anonymous event. That and the ability of sophisticated crooks to gain personal information and access to individuals' investment accounts are making for some very scary cases of what is called identity fraud, in which one person pretends to be another in order to gain access to his or her money.

Not that investment companies will readily concede the point.

Indeed, investor security turns out to be a touchy subject in the investment business, one many companies are reluctant to discuss in any but the most general terms, if they'll talk about it at all.

A spokesman for Smith Barney Inc. insisted that his company's investors are secure because their full-service brokers know them. But he also insisted I not publish his name saying so.

"I've never really heard of anything going very sour in that regard," he said. Nor, he said curtly, was he interested in having any company executive "spend an hour talking about this." Then he hung up.

John Collins, the head spokesman for the Washington-based Investment Company Institute, similarly played down any idea that what happened to me could be an indication of some serious industrywide account security problem. Rather, he likened it to "a forgery, similar to that involving a stolen check or money order."

Don Botler, the trade group's vice president, emphasized that the roughly one in three American households that have invested a combined $3.6 trillion in mutual funds are largely secure from fraud.

Indeed, only about $4 million has been defrauded from fund companies over the last several years, according to Natalie Shirley, senior vice president for the separate ICI Mutual Insurance Co., the leading insurer of mutual funds. Of course, that figure doesn't include every type of case, nor any attempted frauds like the one that disrupted my life.

Shirley also pointed out that most such frauds are committed by "someone known to the shareholder. This may be an estranged spouse, a disgruntled household employee or an angry child" who has obtained access to a client's account information. But fraud by strangers is the fastest-growing type, she added.

And, as always, there is the worry that the fraud may just be an inside job. Typical is a third-party check scheme last year targeting Goldman, Sachs & Co. A man named Madueke Ekwarka, working with a temporary employee in the Goldman Sachs mail room, was allegedly able to steal $2.8 million from the brokerage.

Ekwarka posed as a Goldman executive, opened bank accounts, desposited checks made out to the brokerage and then wrote checks on the accounts to accomplices, according to news reports. Ekwarka pleaded guilty last fall in New York federal court to conspiracy, fraudulent use of a fictitious name and interstate transportation of stolen property.

To safeguard against a repeat of this, most fund companies no longer accept third-party checks, Shirley said.

There weren't similar safeguards to prevent the fraud targeting me, however.

I learned about the scheme shortly after being told that my balance in one of my funds was zero. Then I was told that two days earlier, I had closed out nearly all my other equity funds, transferring the money into a cash account from which a check could be written.

The unauthorized transactions were startling enough, but I still didn't see the full danger. Fidelity would send a check only to my home address, right?

But then I discovered that "I" was going on vacation.

Through a chance conversation with William Enojado, my postal carrier, I learned that I had placed a two-week vacation hold on my mail--the hold period coinciding with the time a check would have been mailed.

As it turns out, it is not particularly difficult to fraudulently place a vacation hold. No identification is required, according to Ken Snavely, customer service manager for Santa Monica's Colorado Avenue postal station, the one that processes my mail.

Since I rarely use the Colorado Avenue facility, none of the clerks there would be able to match my name to a face. With the check in hand, the thief would then have had a chance to cash it.

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