Fed up

“Hello. This is John Wilson calling from the Federal Reserve Bank of New York Grants Department. You have been selected to receive a $9,000 federal grant based on your clean criminal history and the fact that you have paid your taxes on time. To claim your grant is very simple. You will need to pay a $250 processing fee to the Federal Reserve Bank of New York …”

Would you have hung up? Sadly, many fall for this scam and are coerced out of hundreds — sometimes thousands — of dollars along with revealing personally identifiable information (PII). This scam isn’t new, and isn’t unique to the New York Fed.

What’s the New York Fed?

The Federal Reserve Bank of New York is one of 12 regional Reserve Banks, which together with the board of governors in Washington, D.C., make up the Federal Reserve System. The U.S. Congress created the Fed, as the system is commonly called, in 1913 to serve as the U.S. central bank. It’s responsible for:

• Formulating and executing monetary policy.
• Supervising and regulating depository institutions.
• Providing an elastic currency.
• Assisting the federal government’s financing operations.
• Serving as the banker for the U.S. government.

(See Overview of the Federal Reserve System.)

Seventeen years ago, the Federal Reserve Bank of New York began a website to educate the public on known scams that use (or, more accurately, misuse) the Federal Reserve’s name as part of the scam.

These schemes range from your typical advance fee frauds to high-yield investment program scams. A team of dedicated investigators from the Investigations and Financial Intelligence Unit of the Federal Reserve Bank of New York’s Legal Group updates the website as it learns of new frauds. The investigators also notify victims of the frauds, work with law enforcement and coordinate with internet service providers (ISPs) to have fraudulent email accounts and websites shut down.

Information the investigators provided to law enforcement has led to arrests and trials. The investigators and staff often issue cease-and-desist letters to various ISPs about fraudulent domains and email addresses. The website also contains an updated list of known fraudulent email addresses.

Grant scam

The grant scam, highlighted in the opening, has been circulating since at least 2010. More than 2,400 of its victims have contacted the New York Fed over the years. We expect the scam has affected many others, but they’re either too embarrassed to report it or they went to law enforcement agencies. (Fraud victims can contact the New York Fed through a dedicated New York Fed fraud email address, various New York Fed hotlines and snail mail. Other Federal Reserve districts also refer victims to the New York Fed.)

The basics of the grant scam are similar to those of any advanced fee fraud. A fraudster contacts a victim (usually via a phone call), tells them they have a lump sum of money coming their way (typically in the $9,000 range), and they need to pay a service fee (or a “donation” or “tax”) to release their money.

The fraudsters prey on the weak, the vulnerable, the elderly and the young. The victim wants to believe it’s true because they need it to be true. In the original scam, the fraudster directs the victim to wire the money to them from the nearest Western Union or MoneyGram. Usually, once the victim sends the money, they never hear from the “Federal Reserve employee” again, and, of course, they never receive a grant. Sometimes, the fraudsters reach out to the victim a second or third time and explain they need to send additional processing fees to release the funds.

In the latest version of this scam, the fraudster directs a victim over the phone to purchase a gift card from a nearby store — usually in the amount of $200 or more — leave the store immediately and provide the fraudster with the digital code on the back of the card.

We receive calls and emails daily from victims of this scam. Most have lost money by the time they reach out to the New York Fed. They understand immediately that they were victims of a scam. They’re upset and embarrassed, but they take it as a lesson learned. Then we find it difficult to convince others who insist that we owe them grant money.

We’re diligent about educating would-be victims of this scam and ways to report it to law enforcement, but still it continues. Western Union, Apple and others also have issued warnings on their websites.

Fake inheritances, high-yield investment programs, fictitious bank notes

What would you think if the president of the Federal Reserve Bank of New York, William Dudley, emailed you informing you that the Fed was holding a $10 million inheritance in your name? All you need to do is pay a “one-time service fee” to have the funds released to your bank account.

Many people might immediately hit “delete” because they know that this promise can’t be true. However, some might have recently had a death in the family and believe, just perhaps, there’s an inheritance in their name.

The victims-to-be want more information, so they begin a dialogue with the fraudsters. Although they might be cautious about sending a “service fee,” they could be lured into giving PII and bank account information. And they could click on a malicious link and immediately give the fraudster access to their computer and all sorts of PII.

In another scam we often encounter, a supposed trader, with connections to Federal Reserve insiders, offers “secretive, invitation-only” investments with an impossibly high return. The trader offers lucrative programs of investments involving various types of financial instruments, such as medium-term notes, standby letters of credit, and/or “prime bank” guarantees.

When victims contact us about these investment scams, we explain that employees of the Federal Reserve Bank of New York and the Federal Reserve System don’t offer investments to the general public. Furthermore, the Federal Reserve doesn’t authorize, license, or sanction agents or traders to deal with the general public for anything called a “high-yield investment program.”

In another creative investment scam, a “business man” contacts a victim-to-be and explains that he has some Federal Reserve notes that he’s willing to sell for a discount or use as collateral. After a victim’s skepticism finally settles in, they’ll contact the New York Fed to ask if the notes are genuine.

Victims will send investigators photos of the notes, but they’re always fraudulent. For example, the largest denomination of currency the Bureau of Engraving and Printing ever printed was the $100,000 Series 1934 Gold Certificate, which featured the portrait of President Woodrow Wilson. The bureau printed these notes from Dec. 18, 1934 through Jan. 9, 1935. The U.S. treasurer issued them to Federal Reserve banks only against an equal amount of gold bullion held by the Treasury Department. Federal Reserve banks only used the notes for official transactions for a very short period of time, and they were never distributed to the general public.

Community outreach

Scams are creative and ever-evolving, and fraudsters can be persuasive. Education and awareness is the key to preventing more victims from falling prey. The New York Fed investigators will continue to respond to victims and try to prevent future victims by proactively keeping the public aware and informed of scams and threats. We encourage you to share this information with family and friends and throughout your work. This information is useful to everyone because fraudsters don’t discriminate.

The views expressed here are the authors’ own and don’t necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

Kristin Owens, CFE, is a financial intelligence investigator for the Enforcement, Litigation, Investigations and Corporate Affairs Division of the Federal Reserve Bank of New York. Her email address is: Kristin.owens@ny.frb.org.

Robert Amenta, CFE, is an assistant vice president and financial intelligence investigator for the Enforcement, Litigation, Investigations and Corporate Affairs Division of the Federal Reserve Bank of New York. His email address is: Robert.amenta@ny.frb.org.