June 24, 1991
TO: OPERATIONS COMMITTEE NO. 20-91
TRANSFER AGENT ADVISORY COMMITTEE NO. 30-91
RE: SCHEME INVOLVING FRAUDULENT ENDORSEMENTS ON THIRD
PARTY CHECKS
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We have recently been made aware of the existence of a
scheme involving fraudulent endorsements on third party checks
which are deposited to mutual fund accounts and redeemed a short
time later.
The procedure for the fraudulent scheme is as follows:
1. An account is established using a third party check
endorsed by a person that appears to be related to the
payee. The name listed on the account is the name of
payee or the person making the endorsement. For
example, a check made out to XYZ partnership is
endorsed by a person purporting to be X and to have
authority to endorse for XYZ and used to open an
account in the name of XYZ partnership or X.
2. Thereafter, various third party checks are deposited to
the account. Neither the payee nor the payor have any
obvious relationship to the account. The checks are
apparently intercepted prior to receipt by the payee,
fraudulently endorsed and then used to purchase mutual
fund shares by assigning the checks to the accounts.
For example, ABC issues a check to PQR. The check is
endorsed by a person purporting to be or have authority
to endorse for PQR and an assignment is made to the
mutual fund account of X.
3. The account is liquidated a couple of weeks later.
Thus far, all of the fraudulently endorsed checks have been
made out to different payees and different payors; however, each
of the payees had post office box addresses in the Los Angeles,
California area.
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If you accept third party checks to purchase mutual fund
shares, you may wish to review your procedure for such
acceptance. It has been suggested that you may wish to review
all third party checks in excess of a certain sum and attempt to
verify that the endorsement and assignment are legitimate.
Please let us know if you learn of types of incidents
similar to that described above or other types of fraudulent
activity. We will alert members to new or pervasive schemes.
Donald E. O'Connor
Vice President - Operations