Key Takeaways
- •Bryan Smith (Senior Vice President of Complex Investigations and Intelligence, FINRA) announced that the new Financial Intelligence Fusion Center successfully alerted firms to a fraudulent scheme within three hours.
- •Jilenne Gunther (National Director, BankSafe Initiative at AARP) testified that "speed bumps" or transaction delays are the most effective tool to prevent AI-driven exploitation before money leaves accounts.
- •Rep. Wagner (R, MO-2) and Gunther discussed how the Financial Exploitation Prevention Act would provide critical time for mutual funds to investigate red flags and protect senior investors.
- •Rep. Sherman (D, CA-32) criticized the administration for cutting SEC enforcement staff by 20 percent, while Republicans emphasized the need for better tools to target international fraudsters.
- •Lawmakers are considering H.R. 2478 to grant firms liability protection for delaying suspicious trades, aiming to modernize the regulatory framework to keep pace with industrial-scale, technology-enabled fraud.
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Hearing Analysis
Overview
This hearing examined the escalating threat of financial fraud and exploitation within U.S. capital markets, with a particular focus on the impact on retail investors and senior citizens. As investment scams accounted for nearly half of the $12 billion lost to financial exploitation in 2024, the discussion centered on the role of emerging technologies like artificial intelligence (AI) in facilitating sophisticated "pump and dump" schemes and account takeovers. The subcommittee explored the necessity of intergovernmental cooperation and private-sector intervention to protect market integrity and restore investor trust.
Key Testimony & Policy
Witnesses highlighted a shift in the nature of financial crime, describing it as an organized, international business model rather than isolated incidents. Bryan Smith, Senior Vice President at the Financial Industry Regulatory Authority (FINRA), detailed the launch of the Financial Intelligence Fusion Center (FIFC), a platform designed for real-time threat intelligence sharing among member firms. Smith emphasized that while detection has improved, the globalized nature of these criminal enterprises—often operating out of overseas scam centers—requires a multi-layered defense involving law enforcement and regulatory bodies.
Jilenne Gunther, National Director of the BankSafe Initiative at AARP, testified on the success of the BankSafe program, which has reportedly prevented over $560 million in theft through industry training. She advocated for "speed bumps," or temporary transaction holds, to allow financial institutions to investigate suspicious activity before funds are permanently lost. Gunther specifically supported the Financial Exploitation Prevention Act, authored by Rep. Ann Wagner (R, MO-2), which would grant mutual funds the authority to delay redemptions when exploitation is suspected.
Matthew Michel, Managing Partner of InvestorLink Capital Markets, argued that the primary challenge is no longer detection but response. He noted that while private sector tools can identify high-confidence warning signals for market manipulation, the current regulatory framework remains too reactive. Michel expressed support for H.R. 2478 and proposed FINRA Rule 2166, which would provide a targeted five-day business hold on suspicious transactions, offering firms the regulatory clarity needed to act proactively without fear of liability.
Professor Andrew Verstein of UCLA School of Law raised concerns regarding the erosion of the Securities and Exchange Commission’s (SEC) enforcement capacity. He pointed to a 20 percent reduction in SEC enforcement staff and the scaling back of the Consolidated Audit Trail (CAT) as significant risks to market transparency. Verstein also highlighted the specific threat of insider trading by government officials, citing suspicious trades in crude oil futures and prediction markets like Polymarket that coincided with major White House announcements.
Notable Exchanges & Partisan Dynamics
The hearing featured a sharp partisan divide regarding the current administration's management of the SEC. Ranking Member Brad Sherman (D, CA-32) and Rep. Maxine Waters (D, CA-43) criticized the reduction in SEC enforcement staffing, arguing that "defanging" the regulator invites fraud. Rep. Waters and Rep. Stephen Lynch (D, MA-8) specifically alleged that the Trump administration has fostered a "culture of corruption," pointing to suspicious trading patterns in prediction markets and the dismissal of cases against high-profile crypto figures like Justin Sun and the Winklevoss twins.
Republicans, including Rep. J. Hill (R, AR-2) and Rep. Ann Wagner (R, MO-2), focused on the mechanics of fraud and the need for legislative tools to empower the private sector. Rep. Wagner defended the Financial Exploitation Prevention Act as a common-sense measure to protect seniors. A technical debate also emerged regarding "tokenized" securities; while Rep. Sherman argued that tokenization could help bypass "Know Your Customer" (KYC) rules and facilitate insider trading, Rep. Bryan Steil (R, WI-1) countered that placing a security on a blockchain does not alter its regulatory status or exempt it from existing securities laws.
Rep. David Scott (D, GA-13) discussed the SEC Data Protection Act, a bipartisan effort with Rep. Barry Loudermilk (R, GA-11) aimed at addressing vulnerabilities in how the SEC handles sensitive market data. Meanwhile, Rep. Zachary Nunn (R, IA-3) highlighted the devastating local impact of fraud in Iowa, where individual losses have quadrupled in the past year, often driven by foreign state-sponsored actors.
Organizations Mentioned
* **Securities and Exchange Commission (SEC):** Discussed extensively regarding its 20 percent enforcement staff reduction and its role in policing international "cross-border" fraud. * **Financial Industry Regulatory Authority (FINRA):** Highlighted for its Financial Intelligence Fusion Center (FIFC) and proposed Rule 2166 regarding transaction "speed bumps." * **AARP:** Praised for its BankSafe Initiative and Fraud Watch Network, which provide training to financial institutions to stop elder exploitation. * **Meta Platforms, Inc. (Meta):** Criticized by several members for allegedly deriving significant revenue from fraudulent advertisements and failing to police "finfluencers." * **Federal Bureau of Investigation (FBI):** Cited for its Internet Crime Complaint Center (IC3) statistics, which showed $20 billion in attempted fraud in 2025. * **Department of Justice (DOJ):** Mentioned in the context of seizing hundreds of millions of dollars in assets following referrals from FINRA and private firms. * **Cybersecurity and Infrastructure Security Agency (CISA):** Discussed regarding the importance of the reauthorization of the CISA 2015 Act to maintain threat intelligence sharing. * **Polymarket:** Identified as a platform where suspicious, high-profit trades occurred immediately preceding major government policy announcements.
What's Next
The subcommittee is expected to move forward with the Financial Exploitation Prevention Act to provide mutual funds with legal safe harbors for transaction holds. Members also indicated a push for the reauthorization of CISA 2015 before its September 30 deadline. Further scrutiny of the SEC’s staffing levels and the implementation of the Consolidated Audit Trail (CAT) is likely, alongside continued legislative development of the SEC Data Protection Act and H.R. 2478.
Transcript
Good morning. The subcommittee on Capital Markets will come to order. Without objection, the chair is authorized to declare a recess of the committee at any time today. Today's hearing is entitled Safeguarding Main Street: Combatting Fraud and Exploitation in Our Capital Markets. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion for the record. I now recognize myself for four minutes for an opening statement. Once again, good morning, and I want to start by thanking our witnesses for being here today to discuss this very important topic. This hearing builds on the committee's work to protect American investors from financial fraud. In 2024, investment scams accounted for nearly half of the $12 billion Americans lost to financial exploitation, representing a 24 percent increase from the previous year. Securities fraud can take many forms, from pump and dump schemes where scammers use false information to pump up stock prices only to dump their shares and swindle everyday investors, to account takeovers where hackers hijack brokerage accounts and send assets to untraceable locations. These scams ranked as the FBI's fourth most frequently reported cybercrime, yet they cause the highest total financial loss to investors. Criminals are targeting our most vulnerable citizens, including seniors and adults with impairments. Today, as we know, April 15 is tax day, and now that the Working Families Tax Cut ensures that seniors have no tax on Social Security, we need to make sure that they are protected from these scams. The FBI reported that people over the age of 60 lost more money to fraud than any other demographic. But these statistics are more than just numbers. They represent real pain for families and businesses across our country. Retirement funds erased, emergency savings gone, and hard-earned investments wiped away in an instant. These threats not only hurt American citizens, but they undermine the integrity of our capital markets as a whole. When bad actors exploit the markets for their own gain, Main Street loses trust that their investments are safe. Unfortunately, new technologies have allowed scammers to proliferate fraud on a larger scale than ever before, much of which is coordinated across social media platforms and encrypted messaging apps. Criminals can now create websites that look identical to your broker-dealer's, siphoning away money that you thought was secure. Artificial intelligence opens new frontiers for scams through faked voices and altered videos, with scammers masquerading as loved ones or trusted financial advisors. On top of that, we now have overseas scam centers operating at an industrial scale, far from the reach of U.S. law enforcement. We've seen Chinese companies listed on our stock exchanges take part in ramp and dump schemes where scammers ramp up stocks' price through bots and fake accounts to then dump their stock at a peak and profit at the expense of the American investor. This is a global problem that calls for a multi-level intergovernmental approach. That's why I'm glad regulators and industry stakeholders have made this a top priority, including the SEC under Chairman Atkins, which has targeted malicious foreign actors through the commission's cross-border task force. Fighting fraud and exploitation is not a partisan issue. It's about protecting Main Street investors who put their trust in our capital markets. Our witnesses today bring deep experience in financial regulation, law enforcement, market mechanics, and fraud prevention. I look forward to today's discussion. And I now recognize the ranking member of the subcommittee, Mr. Sherman, for four minutes for his opening statement.
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