Use 19th century technology to defeat 21st century fraud

O'Hara 150x150Jim O’Hara, CISM, CISSP, CEHInformation Security Officer

March 10, 1876. Alexander Graham Bell’s Boston laboratory.

“Mr. Watson come here – I want to see you. I think someone just looted my brokerage account.”

Okay. Those may not have been the exact words spoken over the first useful telephonic device. But similar words are spoken on any given day in the modern world.

In the early 2000s, hackers and fraudsters preyed upon a burgeoning digital world. As financial institutions rushed to establish an online presence, cyber security controls were often overlooked, inadequate, and sometimes nonexistent. Regulatory bodies were slow to adjust to the new playing field as well, and firms could quite literally put their clients at risk without violating written regulations.

After a few hard lessons, smart financials became extremely focused on security, and the regulators followed suit, updating compliance requirements to counter the threats inherent in the brave new digital world. The SEC was no longer telling firms to “exercise responsibility in protecting client data.” They were now saying “deploy and maintain a stateful inspection firewall.” Seeking compliance, firms tossed out the security appliance purchased at the local office superstore and installed second generation firewalls and network intrusion prevention systems. They hired information security professionals who established security departments and put in place comprehensive technical controls and written policies. Game on.

Hackers and fraudsters soon discovered that their old tools and methods were no longer effective. It had suddenly become much more difficult to compromise the now security-savvy financial firms. What to do?

If you can’t pick the lock, steal the key. Criminal focus shifted from defeating the security systems protecting valuable data, to compromising individuals who had direct access to it. Credential theft became the hack-du-jour, and remains so to this day, in the fraudsters’ all-time favorite flavor: Email phishing.

The most effective use of phishing as a fraud tool follows this simple 3-step process:

  1. Phish the investor. Typically, in the form of an email masquerading as the victim’s email provider. The investor is asked to follow a link and validate their credentials. The linked site is usually very convincing, complete with the email provider’s current branding. The victim dutifully enters their username and password and is told “Thank you. Your account is secure.”
  2. Using the stolen credentials, the fraudster logs into the investor’s email account and reviews its contents. They watch and wait. They learn who is managing the investor’s money, how they communicate, and in some cases, they may even see prior communications related to a distribution.
  3. When the timing is right, usually around the holidays or a weekend, the fraudster jumps into an existing email message thread. They talk about how long it’s been since they’ve spoken, ask how Jenny is doing at Cornell, and then….instruct the financial advisor to perform a distribution to a newly established bank account. Usually it’s for a down payment on that dream vacation home, sometimes it’s to buy their spouse the classic convertible they’ve always wanted. A theme common to all the messages is that time is of the essence. The advisor needs to move the money quickly or the opportunity for the house or car will be missed.

Alexander Graham Bell’s invention then comes into play in one of two ways. Either the advisor calls their client and learns of the attempted fraud, or the client calls the advisor a week or two later and asks why their account is short. It’s the advisor who determines which call takes place.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Hacking human nature

O'HaraJim O’Hara, CISM, CISSP, CEH, Information Security Officer

As organizations have improved the technical controls protecting their assets, hackers and fraudsters have adjusted their aim – to human nature.  Why spend countless hours picking at an impenetrable lock when, with a little trickery and sleight of hand, the owner will happily provide the key?  Why don black clothing and a ski mask to risk life and limb committing a crime when you can perpetrate the same act more effectively from your couch?  In your pajamas.

Social engineering attacks have risen to levels not seen since 2004. Attackers prey on a victim’s complacency, good nature, and desire to please.  All characteristics inherent to human nature.

A-phishin’ we will go…

Far and away the most prevalent form of social engineering, email Phishing, has become the fraudster’s weapon of choice.  These types of attacks are relatively simple to perform, and enjoy an incredible return on investment.

Fraudulent email accounts can be created in seconds, at no cost.  Key organizational contact information is just a web search away, often listed on the victim’s own website or social media profile.  Fake websites can be constructed in minutes and hosted for less than a dollar a day.  Each of these elements combine to represent a highly effective and efficient tool for theft.  Theft of identities, reputations, intellectual property, and cold hard cash.


Email phishing attacks typically have one or more of the following characteristics:

  • The email sender appears to be an individual or entity known to the victim. In many cases, the “friendly name” of the sender is identical to an advisor, associate, or organization familiar to the victim.  Only through closer inspection does it become apparent that the actual address used by the sender is fake.
  • The email content appears to be of a pressing, urgent nature. When given a time constraint, humans are more likely to leave caution to the wind, set aside better judgement, and bypass normal procedures.  Attackers often attempt to create a sense of urgency in order to exploit this aspect of human nature.
  • The email contains links. Phishing emails often contain links to fraudulent or malicious websites.  Fraudulent websites are often spot-on doppelgangers of their legitimate peers.  The attacker’s hope is that the victim will attempt to log onto the fake site, revealing their credentials, which the attacker will then use to access the legitimate site, or other accounts of the victim.  Malicious websites often contain malware designed to exploit weaknesses in the victim’s browser.  Once installed this malware may be used to collect credentials, log keystrokes, or perpetrate other criminal acts using the victim’s computer or device.

Protection must remain a top priority at all times

In an increasingly rapid service-on-demand digital age, clients expect transactions to take place almost instantly.  Advisors have a strong desire to please their client by meeting that expectation.  This is human nature.  Making a distribution happen quickly will please the client, and is a “win” for the advisor.  But is it still a win if that quick client distribution is executed based on fraudulent instructions and deposited to an account controlled by a hacker?

The key to thwarting social engineering attacks is recognizing that protecting your clients and their assets is your top priority.  Airline passengers hope to arrive at their destinations on time.  But they don’t fault the pilot for following the preflight checklist, avoiding dangerous weather, or getting clarification from air traffic control when the flight plan seems a little “phishy”.

How to protect yourself and your clients:

  • Be wary of email instructions. Email is the fraudster’s preferred tool because it is effective.  Email should never be relied upon as reliable and authentic.  Even messages from legitimate addresses are suspect, as the sender’s account may very well have been compromised.
  • Keep human nature in check. Instructions or requests attempting to impart a sense of urgency, requiring quick, atypical actions on your behalf should be regarded as especially suspect.  Recognize the potential intent of such tactics and stick to your regular procedures and processes.
  • Pick up the phone. It is highly recommended that advisors verify client distribution instructions in-person or via telephone.  Confirm the identity of your client, and ensure the instructions you’ve received are accurate.

At Brinker Capital we are committed to continually improving our technology and security policies in an effort to stay ahead of current cyber threats within the industry. Together, we can take steps to help keep client information safe.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.