High Net Worth Individuals are a Common Target of Identity Theives

This post is based on excerpts from an article that was originally published by The Street on October 23, 2015: http://www.thestreet.com/story/13336075/1/identity-fraud-most-common-among-high-net-worth-individuals.html  

High net-worth individuals have access to a lot more financial protection than the rest of the population, but that doesn’t make them immune to fraud in the least.

In fact, high net-worth individuals are actually more likely to be the victims of identity theft than the greater population. According to market research firm Javelin Strategy & Research, identity thieves stole $16 billion from 12.7 million U.S. consumers last year. However, while 5% of the general population had their identities stolen last year, that jumps to 8.1% for those with more than $1 million in assets.

Matt Cullina, chief executive of financial security firm IDT911 (whose client base includes Allstate, Met Life, FreedomID and Liberty Mutual), notes that banks have hardened their defenses and have increasingly required multiple levels of authentication to make sure that transactions are being made by the right people. Those banks have set up special classes for high net worth individuals that, in many cases, require person to person meetings or calls to authenticate transactions. However, that doesn’t stop identity thieves from opening new accounts or filing tax returns in those individuals’ names.

“We try to tell them your identity is a series of assets,” Cullina says. “It’s not just your name, your Social Security number and your date of birth, it’s also all your passwords, your PINs, all your open accounts, your email, how you communicate through e-mail, your style, how you do business -- oftentimes, high-net-worth individuals with co-mingle their business lives and social lives.”

A combination of lax security and a sprawling circle of friends, acquaintances and employees can be disastrous for someone with high net worth. Jared Feldman, a partner at Anchin, Block and Anchin, notes that something as simple as an email password can be the only tool someone needs to access a high net worth individual’s vast finances.

“One of the new ways that we’re seeing them get to clients over the last few years is seeing, somehow, individuals logging into clients’ email accounts and sending e-mails from those accounts,” he says. “Whereas a client may communicate through email with their banker -- i.e. ‘please send this wire transfer to someone for this bill’ -- people committing fraud are sophisticated about getting into email accounts and sending emails to bankers requesting a payment or a transfer. If there’s no call-back in place, there’s exposure of money being transferred to the wrong party.”

Cullina says that his firm sees wire-transfer fraud occur far more frequently with the high net-worth population than the average population, among both businesses and individuals. Because high net-worth people are moving a lot of money around and making a lot of wire transactions -- investing, donating to charity and the like -- it’s making them vulnerable and creating a lot of losses as a result.

“Typically somebody’s impersonating them,” Cullina says. “Somebody gets access to their e-mail, they see how they’re making these transfers, they see what kind of parlance they’re using -- like nicknames for people at the money transfer firm -- and they tend to impersonate the HNW individual or the banker on the other end.”

If impersonating a banker, Cullina says the crook simply uses a high net-worth individual’s personality and business sense against him. The fraudster uses a time element to confuse the victim (“I need this by X time”) and creates a sense of immediacy for people already facing a steady stream of demands and deadlines in their lives. Cullina says that such haste usually means precautionary steps aren’t followed to the letter and transactions go unchecked. While Feldman notes that changing passwords regularly and setting up complex passwords unrelated to one’s personal life can help dramatically, he also notes that it pays to keep in touch with your banker every so often.

“One of the other things we discuss is the familiarity between the banker and the client themselves,” he says. “The familiarity of the banker to know that ‘Wait a minute, this is a new vendor and not a typical wire transfer from our client and we should see our client in person and not just accept an email... ‘ If there’s a better relationship, they can nip this before it happens.”

It can also help stave off long-term fraud. As the Javelin study points out, victims of new account fraud are three times more likely to take a year or more to discover that their identities were misused compared to fraud accessing older existing accounts. However, high net-worth individuals are also increasingly being targeted by tax fraud in which someone files a tax return using their personal information in an attempt to pocket refund money. While Feldman says it’s worth a high net-worth individual’s time to call the IRS or notify the FTC if he’s receiving suspect documents or phone calls, that fraud usually goes undetected until the person attempts to file his real return.

“Upon filing the actual client’s tax return and submitting it, it might not get accepted from electronic filing and it might come back with a notice that the return has already been filed,” Feldman says. “That’s an easy indication that’s it’s been compromised and a fraudulent return has been filed.”

Cullina adds that even a tax refund that never shows up can be a sign that your tax information has been compromised. Unfortunately, in 20% of all tax fraud cases, it means that the victim is going to be subject to another form of fraud within the year. While Feldman says email encryption, tokenized financial transactions and other tech-savvy solutions help, high net-worth individuals can help themselves by simply going over their own information every so often.

“Usually, what comes as second-nature -- through a lot of people don’t do it -- is reviewing banking and credit card activity on a regular basis and looking for activity that’s out of the ordinary,” he says. “It sounds like very logical and like something people would automatically do, but they don’t, so having a family office or the client themselves making sure that they log into their credit card on a regular basis and recognize the transactions helps.”

Unfortunately, that approach doesn’t typically work for high net-worth individuals. Cullina notes that they don’t tend to use credit in the way that an average consumer does, so they often don’t check their credit reports as frequently. They also tend to employ various people to manage aspects of their professional and personal lives, which unfortunately makes them only more vulnerable to fraud.

“What tends to make them more vulnerable is that they get used to doing business at light speed, so they have open lines of credit with everything from their club memberships to charitable giving to all sorts of financial transactions with financial institutions, investment firms and insurance companies,” he says. “They have all of these openings for fraudsters to get their foot in the door.”

”There’s no way to prevent these types of issues and no silver bullet,” Cullina says. “There are layers of things you can do to help protect against fraud.”

This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.

Mark Norman
Mark Norman