Safeguarding Main Street: Combatting Fraud and Exploitation in Our Capital Markets

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.

Thank you for holding this hearing. I think your opening statement demonstrates why this administration should not have cut the SEC enforcement staff by 20 percent. Two or three things we need to focus on. First are the finfluencers on social media. Social media platforms need to do a better job of policing the ads that power their companies. Reuters has reported that Meta allegedly projects nearly 10 percent of its revenue is derived from advertisements for scams and banned goods, and that includes these folks who have a financial interest in the free financial advice they're providing. Second, Congress has recently targeted fraudsters by saying broker-dealers can, in extraordinary circumstances, provide a 15-day hold when they reasonably suspect that the investor is being targeted for fraud. When an investor wants to send, an older male investor wants to send a million dollars to a beautiful young woman he's met only online, we have to say she doesn't love you and she's not a she. We need to stop the idea of tokenized securities because that kills the consolidated audit trail. You'll be able to see that this or that account number seems to be making brilliant trades, but you'll never know who owns that account. And without that, you end up with a perfect methodology for insider trading. Chinese companies often sell not the stock of their company to Americans, but variable interest entities based in the Cayman Islands. Such securities pretend to be common stock in the underlying well-known Chinese company. These variable interest entities, VIEs, do not belong in index funds, and I'm not sure they belong in any portfolio. We need to deal with naked shorting, and I hope FINRA will take a stronger view on that. And finally, when it comes to fraud in our capital markets, one need not look any further than Trump Coin. Pumped to $75.35. Dumped down to today's price of $2.80. But of particular concern with the fact that it is the president's coin is that anyone seeking influence with the president could have bought the coins from his family for $75.35 and then not worried about whether the coins are now worth $2.80 because, after all, the purpose wasn't to make a profit, the purpose was to influence a president. So we have a lot of fraud to police here, and I look forward to these hearings and, believe it or not, will end my statement with 40 seconds left to go. I yield back.

Very good start. Gentleman yields back. I now recognize the chairman of the full committee, Mr. Hill, for one minute for an opening statement.

Thank you, Chair Wagner and Ranking Member Sherman. Appreciate you having this important hearing. It's something that we're dealing with across all aspects of financial services. As emerging technologies and new digital platforms are rapidly reshaping the financial markets, making it increasingly difficult to detect and prevent fraud, posing significant risk to investors and, I would say, bank customers and others across the country. Between 2020 and 2024, so since the pandemic, securities and investment fraud offenses have increased 25 percent. In 2024 alone, investors lost almost $6 billion to scams. Those are just the cases that we know about through reporting. Financial scams are becoming increasingly sophisticated, ranging from market manipulation like pump and dump to digital age Ponzi schemes and account takeovers. Unfortunately, seniors and retail investors are bearing the heaviest burden. The bad actors behind these scams come in many forms, and the purpose of this hearing is to make sure Congress knows what tools that we can have and we can suggest be used by our regulators to keep Americans safe and encourage the best behavior by our private sector. I yield back to the chair.

Gentleman's time has expired. Today, we welcome the testimony of Mr. Bryan Smith, the senior vice president of complex investigations and intelligence at FINRA; Ms. Jilenne Gunther, the national director of the BankSafe Initiative at AARP; Mr. Matthew Michel, the founder and managing partner of InvestorLink Capital Markets; and Professor Andrew Verstein, a professor of law and vice dean for curricular and academic affairs at the UCLA School of Law. We thank each of you for taking the time to be here. Each of you will be recognized for five minutes to give an oral presentation of your testimony. Without objection, your written statements will be made part of the record. Mr. Smith, you are now recognized for five minutes for your remarks.

Chairman Wagner, Ranking Member Sherman, and members of the committee. Thank you for the opportunity to appear today to discuss fraud within the capital markets and FINRA's role in combatting the problem. My comments are informed by my current role overseeing complex investigations at FINRA, but also my over 20 years at the FBI where I led operations in cyber, financial, and organized crime. When it comes to fraud, the bottom line is we have a challenge in front of us. FBI Internet Crime Complaint Center statistics released just this month reveal over $20 billion in attempted fraud in 2025, with cyber-enabled fraud accounting for 85 percent of that total. With fraud rising sharply in recent years, it will take a collective approach to combat this evolving threat. And to form this work, there's a few things to understand. First, the threat is international, with actors and infrastructure widely dispersed. They are exploiting the interconnectedness of the global economy and the ability to access targets 24/7 from across the globe. They are specialized and adept as early adopters of technology used to achieve their criminal ends. They're adaptable, evolving to bypass individual and company defenses and evade actions taken by law enforcement. And finally, they operate as a business. No longer is this a small, close-knit group of individuals in a boiler room. These are organized criminal enterprises focused on profits and losses, where they leverage specific skill sets, often outsourced, to achieve their criminal goals. Through which we call the key services. These include malware and some sort of delivery system by which to get it onto the network; infrastructure needed to launch and facilitate the attacks; communications to engage with victims and with fellow criminals; and finally, the most important, the financial piece. They need to discreetly transfer money from the victims' wallets to their own. As a self-regulatory organization focused on investor protection and market integrity, FINRA is uniquely situated to help tackle the fraud challenge, given the expert and rely upon the expertise of our member firms to inform our work, while also equipping them with tools to address fraud. While FINRA plays a key role in protecting capital markets, our jurisdiction is limited. To be effective, we must operate within a broader network of regulators, law enforcement authorities, and private entities. One example of this collaboration is our recently launched Financial Intelligence Fusion Center, a secure information platform designed to collect, filter, and disseminate intelligence based in part on member firms sharing real-time threat activity and is already paying dividends. On its first day, three firms shared intelligence about a fraudulent scheme and within three hours, FINRA had sent an alert notifying all firms about the issue. The information flow in this instance nearly kept pace with the crime and we know of no firms who were victimized. Collaboration is also important because FINRA has limited jurisdiction and where we cannot act, we work with parties who can. Recent examples include referrals that led to hundreds of millions in seizures by the DOJ and FBI resulting in money returned back to investors, the sharing of threat activity which led to takedowns of millions of social media accounts being used to facilitate fraud, and supporting a technology company which took down technical infrastructure being used to infiltrate customer accounts. One area of critical concern is the connection between cyber and financial crime. To assist firms and investors in this area, FINRA proactively shares our own intelligence and mitigation techniques with firms, including through our cyber workshops and tabletop exercises. These practical hands-on experiences and exercises bolster firm resiliency against the criminal experts. And while fraud impacts every generation, criminals frequently target seniors for their relative wealth. To help, FINRA focuses on investor education, offers a helpline for seniors and their families, trains firms, and has rules that help firms identify a trusted contact for clients and permit temporary account holds where fraud is suspected. Investors and broker-dealers are confronting a complex and evolving threat landscape with fraud expanding amid technological changes and globalization. The solution requires an ecosystem of groups working in concert to address the fraud and FINRA plays a vital role. We also know that as these threats evolve, so must we. It is why we remain committed to innovative solutions like the FIFC and continuous improvement of our regulatory programs. As the committee continues the focus on this issue, we welcome the opportunity to serve as a resource for you.

Thank you, Mr. Smith. Ms. Gunther, you are now recognized for five minutes for your remarks. Thank you, Mr. Smith. Ms. Gunther, you are now recognized for five minutes for your remarks.

Good morning. My name is Jilenne Gunther and I'm the national director of AARP's BankSafe Initiative. I'm really Good morning. My name is Jilenne Gunther and I'm the national director of AARP's BankSafe Initiative. I'm really honored to speak with you today on behalf of more than 100 million Americans age 50 and older. I've spent my career working to prevent fraud, first with victims of crime in Missouri and now running programs nationally at AARP. Congress's work addressing fraud has opened up real opportunities for prevention, including protections that allow financial institutions to act when they train staff. And we are seeing the results. AARP's BankSafe program builds on those goals of those laws. We've partnered with more than 1,500 financial institutions, including investment firms, to stop the exploitation before the money leaves the account. The free training we created with the industry paired with policy adoption has helped prevent more than estimated $560 million from ever being stolen from Americans. But this fight is personal. It's in my DNA. My grandfather worked in the financial industry and was a victim. In his 90s, someone was stealing cash from his wallet. My uncle, also in the industry, recognized the red flags and in a move only someone in the industry would think of, he placed a dye pack in my grandfather's wallet and our family literally caught the thief red-handed. Most families aren't that lucky. They don't have bankers, they don't have dye packs. That's why I built a program with my father at the very institution my grandfather had worked at, so other families don't have to rely on luck to protect the people they love. Because fraud is not an accident. It is a crime and it's happening at a devastating scale. The FTC estimates that older adults lose between $7 billion and $62 billion each year. In a blink of an eye, someone can lose their entire retirement savings. The financial industry can be the last line of defense, but only if we give them the authority to act. Right now we're leaving critical tools on the table. Criminals coordinate across telecom, tech, social media, and across the financial system. We do not. We operate in silos. That gap is where fraud succeeds. We need to operate as a connected ecosystem, that means enabling real-time targeted information sharing across institutions and sectors. Fraud doesn't start at the point of transaction. It starts upstream with a text message, social media post, or an online ad. By the time someone is liquidating their assets, the victim has already been manipulated. If we do want to stop losses, we have to intervene earlier. When we act earlier and act together, we can stop fraud before it turns into a devastating financial loss. We need a coordinated federal response and under your leadership, you can make that happen. That means empowering the entire financial industry to delay suspicious transactions without the fear of a liability, enabling real-time information sharing about fraud across the entire financial system, not just in securities, and requiring social media, tech, and telecom platforms to be part of the solution, not hiding places for criminals. Other countries are doing this. In Australia, scam losses dropped 43 percent in one quarter after launching a coordinated national response. We can do the same. This isn't just about stopping theft. It's about protecting trust, preventing negative impacts to business and government, and preserving independence of Americans later in life. Thank you and I look forward to your questions.

I thank you, Ms. Gunther. Mr. Michel, you are now recognized for five minutes for your remarks.

Chairman Wagner, Ranking Member Sherman, and distinguished members of the subcommittee, thank you for the opportunity to testify today. My name is Matt Michel, I'm the founder and managing partner of InvestorLink Capital Markets. I've spent the best better part of my career in the equity capital markets supporting the distribution of over 1,500 IPOs and follow-on offerings representing more than $400 billion in capital raised. This experience has given me an unobstructed view of how capital is formed and distributed in our public markets and how easily those processes can be exploited. In recent years, I've turned my attention to the mechanics of that exploitation, specifically rampant dump schemes that target retail investors through social media promotion, online investment clubs, and coordinated volume spikes in lower priced securities. As the only witness today focused on market structure and manipulation, I'll keep my remarks squarely in that lane. These schemes are not abstract. They take real money from real people, savings meant for a child's education, a retirement, or a first home. But the damage extends well beyond the individual investor. Our small-cap markets run on retail participation. It allows early-stage companies to fund growth and mature into durable businesses. And that growth is a key driver of wealth creation. It's a virtuous cycle and manipulation breaks it. When fraud erodes confidence in the small-cap space, capital dries up, the cost of capital rises, and legitimate issuers are shut out of our markets. The result is not just investor harm, it is American innovation stifled in our own markets. Here's the core insight from the front lines. We no longer have a detection problem. We have a response problem. Over the past 18 months, private sector tools have demonstrated the ability to generate high confidence early warning signals on these patterns, often with meaningful lead time before significant investor harm occurs. These capabilities have been developed, validated, and shared with regulators and market participants for review and discussion. The technology exists, but the critical gap is what happens after a warning signal is identified. Our current regulatory and compliance framework is fundamentally reactive, optimized to investigate fraud after the fact. It is not structured to enable proactive intervention, nor is it flexible enough to allow firms to safely adapt new tools and methodologies at the pace of evolving fraud. As a result, firms that seek to act on forward-looking intelligence face uncertainty about when and how they can do so without exposure to second guessing. There are, however, encouraging developments. FINRA's Financial Intelligence Fusion Center provides a no-cost channel for sharing threat intelligence on rampant dump and investment club schemes. The speed bumps proposed in H.R. 2478 and proposed rule 2166 offer firms a targeted mechanism, a brief delay when there is a reasonable suspicion of fraud paired with notification safeguards. These are constructive steps toward earlier response times without imposing heavy new mandates. A modest amount of regulatory clarity could unlock meaningful progress, particularly around when firms can rely on validated signals to act proactively and with confidence. Principles-based guidance, flexibility across business models, and approaches that combine shared intelligence with firm-level capabilities would go a long way toward closing the gap between detection and response. I look forward to sharing the advancements the private sector has made in early detection and to discussing the gap between what is now possible and what firms can practically adopt under our current framework. Thank you and I look forward to answering your questions.

Thank you, Mr. Michel. Professor Verstein, you are now recognized for five minutes for your remarks.

committee Chair Wagner and Ranking Member Sherman and the rest of the distinguished members of this subcommittee, thank you for the opportunity to testify. I'm Andrew Verstein, vice dean and professor of law at UCLA School of Law. I'm here in my personal capacity and not as a spokesman for UCLA. Today's hearing concerns fraud in our financial markets and I want to address what I consider to be after my research the most pressing concern about fraud at the current moment, which is insider trading by individuals in the government. I consider this problem to be significant, but I'm not the first one to talk about it. The most famous book on insider trading was written by Henry Manne, a George Mason professor in the 1960s, and Manne took the surprising view that insider trading by corporate executives is good and he defended it for 200 and some pages. That's not my view, but I point it out because even Manne, who wanted to decriminalize the whole space, drew the line at government insider trading. Even he thought there are really big problems where that logic unravels. Government officials have access to information that they can that they can profit from, they can use information as payoff devices, and using the powers of the state, they can create the very outcomes they're betting on. And when they do things that aren't appropriate, the accountability mechanisms are reduced because there's no shareholders to vote them out, there's just the voters to vote them out. And and it undermines trust in both the corporate sector and the governmental sector. So Manne drew the line there and if that guy drew the line there, we should take that line very seriously. And that's why I'm very concerned about recent media reports of suspicious trades in commodity and stock markets. I'm troubled by patterns. I'll just mention a few, I'm sure you've been made aware of the same kinds of stories I have, but on March 23rd, roughly $580 million of crude oil futures were sold in a two-minute window approximately 15 minutes before the president announced a halt to strikes on Iranian energy infrastructure. And so those were very profitable commodity trades. Another example, in January, a previously inactive Polymarket account wagered that Venezuelan President Maduro might be deposed or abducted or put out of office. And of course, he was through a covert military operation. And that allowed that trader, who we don't know, to make $34,000 turn into $400,000. Now I can't tell you that either of these events or other events constitute illegal insider trading, nor can I say for sure that they are linked back to the administration. To know any of that, we would need to do investigations into beneficial owners, establish access to non-public information, trace accounts. It's possible that either of these traders were just lucky, or that their access to information was lawful, or it was unlawful from another source besides the administration. Nevertheless, these are trades that bear the hallmarks of illegal insider trading, and ideally we would be investigating them, and whether anyone is investigating is something this committee should care a great deal about. This leads to my second point. Suspicious trading does far more damage to the public when the public has no confidence that anyone is investigating. Weak enforcement doesn't merely fail to catch wrongdoers, it invites suspicion that there's trouble everywhere and it raises trading costs and the costs of capital more broadly. And therefore I'm concerned about the erosion of the SEC's capacities in recent days. As you know, its enforcement results recently announced celebrated the closure of 1,000 matters without action. Whistleblower awards are down 90 percent, staffing down some 20 percent. Meanwhile, the Consolidated Audit Trail, a comprehensive surveillance tool only recently deployed, is being scaled back. I take that last point very seriously. My research as a scholar involves using publicly available data from the SEC to try to track insider trading. For example, co-authors and I found about $100 billion a year of overvalued stock being sold. We were able to determine corporate insiders were doing that on the basis of public information. But when we tried to look at whether this went back to the time of Enron and WorldCom, we couldn't check because the SEC had shredded the relevant information, making our research hit a brick wall. When information is deleted or lost, it means that scholars and enforcement officials, to say nothing of journalists and shareholders, can't learn the truth and can't protect themselves, and they may suspect the worst. So I'm concerned about reduced transparency and reduced capacity at the SEC, and I'm concerned about how that will affect all of the issues before the committee today. I think that elder fraud is a really big problem, Chinese ramp and dump schemes are a problem, influencer fraud is a big problem, and insider trading, corporate and governmental, is a big problem. And markets benefit when there's a robust regulator working to enforce on these issues. The United States has the most trusted financial markets in the world, appropriately so, and it's important that we defend it so that we can keep them.

Gentleman's time has expired. I thank you for your questions. Thank you very much, Professor. We will now turn to member questions, and I recognize myself for five minutes for questioning. The Federal Trade Commission's reports that Missourians, my home state, lost over $76 million to investment scams last year, a staggering $24 million increase from 2024. During that same time, the FBI saw a 300 percent increase in victim complaints about ramp and dump stock fraud. Investment scams are not new, but this astonishing rise is deeply concerning. Ms. Gunther, what do you attribute this increase to?

Thank you, Representative, for the question. It is driven by criminals who are really scaling faster across platforms using artificial intelligence. Combine that with the low friction for moving money quickly, and then limited ability to intervene at the point of the transaction. What we're seeing also is the greatest wealth transfer that we've seen in history, which is $900 trillion being passed from one generation to the other. And to really get ahead of this, we've got to look upstream where you've got the first point of contact between the criminal and the consumer is really key to preventing this.

And how do you see criminals using AI, artificial intelligence, to make scams more believable?

Yeah, so a lot of they're doing a lot of different things. Gone are the days where you can pinpoint a scam because someone's making a spelling error or grammar mistake. They're using AI to write realistic messages, they're cloning people's voices, they're doing deepfake videos of people that they may know, so it makes those scams feel a lot more credible, but also reduces the chance that a consumer is really going to question that interaction. And that's why it's so important, critical, to really look at upstream with the first point of interaction between the criminal and the potential victim.

Ms. Gunther, AARP has been a vital partner in endorsing my bill, the Financial Exploitation Prevention Act. This legislation grants investment companies the power to pause redemptions for seniors and individuals with impairments when exploitation is suspected. We know that once a fraudulent wire transfer or security redemption is processed, that money is often gone forever, leaving seniors with no path for recovery. Under current law, mutual funds are often forced to process these redemptions within a very strict window, even if they see what I'll call real red flags. How does my bill provide that critical breathing room for financial institutions to actually stop the theft before the damage is irreparable?

Thank you so much for the question. Really stopping money before it gets lost, before it leaves that account, is really critical to preventing exploitation. So we had Virginia Tech do a random control study within the financial industry, about 200 financial institutions participated. And the number one thing in terms of most effective intervention was when they have the ability to pause a suspicious transaction. That gives both the mutual fund institutions the ability to ask those suspicious, ask questions, is this suspicious, take time to investigate it. But it also gives that time to the potential victim to slow it down, to get out of that fight versus flight that they're experiencing. So it is extremely critical for mutual funds to have this power.

The Financial Exploitation Prevention Act that I have authored and sponsored in other previous Congresses is absolutely vital that we make this into law, especially as we see this, these terrible increases. Given that so many investment scams originate overseas, it was encouraging to see the SEC announce the creation of its cross-border task force to strengthen the commission's efforts to identify and combat international fraud. Mr. Smith, can you explain how law enforcement and regulators work together to target bad actors overseas and what barriers exist to doing so?

Thank you for that question. As I said in my opening statement, this is an international problem and we've got actors and services that are being leveraged across the globe to defraud American investors. And within that ecosystem, if you think about all those key components to it, there's no one entity that has oversight or authority amongst all of those. And that's why the more that private sector entities, government, regulators can get together to bridge the gaps between those will help investors.

And really just more cooperation is needed between countries to hold foreign scammers that are targeting Americans accountable. My time has expired and I will didn't get down to all my questions at all, but I am now pleased to recognize the ranking member of the subcommittee, Mr. Sherman, for five minutes for his questions.

The SEC launches effective investigations, somebody sees they're in the crosshairs, they buy $100 million worth of Trump coin, they magically the investigation vanishes, Trump is $100 million richer. What could be better than that? Now we've talked a bit about a 15-day delay in someone getting their money. I would point out that when I first met my wife, many people recognized that she was completely out of my league, figured she must think I was wealthy. It worked out. So not every I am concerned about the loss of freedom, but 15 days is not too long to wait in extraordinary circumstances. I am concerned about whether this would apply to political organizations. An organization could say, oh, you want to spend money on your campaign to defraud voters, or you're fraudulent in thinking you have a chance of winning, we're going to hold your money. So we've got to make sure, given the politicization and how extreme things are getting in our world of politics, that no political organization is prevented from spending its money by a financial institution. Mr. Verstein, there's this idea of having DeFi trading, tokenization of our stocks. Of course, exchanges provide transparency regarding to fees, conflicts of interest, access, user segmentation, and most importantly, if on an exchange you buy $100 million worth of a particular stock five minutes before the announcement, there's a decent chance they'll figure out who you are. If we were to tokenize our securities, wouldn't this be a great an open door to those with insider information?

Well, it's a technological question what the current tokens do and it's a political question how we feel about that. I think it's really important to have systems of surveillance and accountability. It's important that when you place a stock trade on Charles Schwab, if it looks suspicious, you're going to get a call from your broker, FINRA might call you or they might call the SEC. That's appropriate. It's appropriate that there's a system of accountability that can trace things and figure things out. We don't necessarily have to use the same fiber optic cables and the same exchanges we've been using for a long time. We could go to new technologies, but it's really important that along the way we not lose the visibility that we that we need in order to keep people accountable.

Well, the whole purpose of tokenization is to eliminate the know your customer rule. If you take the crypto out of crypto, take the hidden out of crypto, it's not crypto anymore. So you're saying that if we have tokenization, we need to somehow have a know your customer for every account?

I think we don't want to have a sleight of hand where we lose visibility just because we change technologies. It seems like that could happen with a lot of the changes that are happening.

I want to focus, okay, staggeringly, Meta allegedly is projected 10 percent of its revenue is derived from advertisements for scammed, banned goods. International documents suggest they are serving as many as 15 billion high-risk scam ads every day. Ms. Gunther, at what point do we need to recognize that the business models of social media, which prioritize ad revenues and traffic over fraud prevention, are becoming a real threat to financial stability?

I'm sorry, can you repeat the question?

Hello. Ms. Gunther.

I'm sorry, can you repeat the question?

Did any other witness hear the question and want to answer? Okay, Ms. Gunther, at what point do we recognize that the business models of social media and telecom companies, which prioritize ad revenue and traffic over fraud prevention, are becoming a threat to financial stability?

Yeah, so one of the things that we need to do is we need to put guardrails there for social media companies. It's really important to have to fight things upstream. That's one of the most important things. I think we spend a lot of time focusing on the downstream, and we need to be a lot more proactive in preventing this so that the criminals are never contacting that potential victim.

Thank you. My time is basically expired.

Gentleman yields back. The chair recognizes the chairman of the full committee, Mr. Hill of Arkansas, for five minutes for questioning.

Thank you, Madam Chair. This is important you're having this hearing, and the committee on both sides of the aisle really concerned about this. We have Dan Meuser, who chairs our oversight committee, also working on this in various ways, and then Andy Barr, who chairs our financial institutions subcommittee. That committee also is looking at this in the banking space. So I want to thank Sherman and Wagner for moving this topic into the fintech broker-dealer space, equally important. Overwhelming numbers when you look at the fraud numbers that have been announced. So let me start with you, Mr. Smith. You know, I was a registered person in broker-dealer business for three decades and also in community banking in my career before Congress. And every Wednesday we met on the phone, our operations people, and we talked about the bad people lurking around Little Rock trying to pass a bad check or make a bad loan or have a fraudulent financial statement. Probably wasn't condoned by law, but it was condoned by protecting our customers. So these kind of things that we've been talking about today are important. And FINRA, I think, has proposed Rule 2166, this so-called speed bump rule that's been referenced here, that would put a temporary five-day business day hold on suspicious transactions. Can you tell me how you think that would benefit and is that legal under the SEC's statutory authority for FINRA to have that kind of a hold?

So you hit on two things there. One is the sharing of intelligence. So we don't think we called it that back then, but that's really important so people understand what we're dealing with, which is why we've implemented some things that we've done at FINRA. Regarding the speed bump rule, I'll also go back to when I was an agent working investigations in Ponzi schemes and investment frauds. And I will tell you anecdotally that in every single one of those instances, that if the victim had asked one more question, if they had inquired about what they were going to do with the money, when they'd be getting the money back, if they said I don't understand what's happening here, those Ponzi schemes, those investment frauds would have fallen apart because the bad actor didn't have the answer to those questions. And so when you look at the proposed rule here in this instance, it's a bit of putting that speed bump in place so people can make rational decisions based off the facts and based off real information. And if that means that you have an institution coming in asking that question and getting those hard answers, that's really important and I think it really can help victims and investors.

Yeah, I think it's important, but I do think a lot of customers, I mean, I've seen this firsthand and I've seen it as a member of Congress too, they insist they're right and they don't need you telling them to get in their business and telling them how to spend their money. And I think that puts broker-dealers and bankers in an awkward position, but I think still that rule may, as you say, slow down that rationality. How are you coordinating with state regulators? I know our state attorney general, Tim Griffin, my predecessor here in the House, reported that 73 percent of all Arkansas adults have been a victim of a cyber-related fraud, mostly coming to them probably through the telecommunications system. But how are you coordinating with the state regulators, securities regulators, and the states' attorneys general?

Yeah, as I've talked about in the opening statement, we have a limited role in our jurisdiction over broker-dealers. But we recognize that the problems that our firms and registered reps and the investors in those are also the ones being seen by other entities, which is why we have ongoing engagement with the SEC and with state regulators. It's critically important that we understand what they're seeing on the ground because what may be happening in Arkansas may not be seen in Texas. And so if we can get intelligence from what's happening there and share it with other individuals as well as then with our member firms, that builds up some resiliency within the ecosystem and firms, whether they're in Arkansas, Texas, or Washington, can identify this and learn from each other.

Thank you very much. Appreciate AARP's deep engagement on this topic with your members and your work, and I was intrigued to read about your BankSafe curriculum. Can you tell us how you keep it up to date with this just exploding, you know, AI-driven attempt at changing the rules of the game every day?

Yeah, thank you, Representative, for that question. We rely on our 1,500 financial institutions that we work with. We put together advisory groups so we're always updating our training and our policies and resources. That allows us to act really quickly to address emerging threats like AI-driven scans. It's one of the reasons why we've been able to save consumers over $560 million on behalf of consumers. And one example that we've just recently put into our training is a video testimonial where a criminal cloned a loved one's voice.

Thank you so much. You just expand on that for the record for us, and I know our members benefit from your work and I yield back, Chairman.

Gentleman yields back. The chair recognizes the ranking member of the full committee, Mrs. Waters of California, for five minutes for questioning.

Thank you so very much, Chair Wagner. This subject matter today is entitled Safeguarding Main Street: Combatting Fraud and Exploitation of Our Capital Markets. Well, you missed the mark. This is too narrowly designed to deal with the issues that this subject matter that you have initiated here does. It does not do that. The Trump family is openly using the office of the presidency to enrich themselves and their billionaire friends. Using meme coins and other ventures, they have extracted billions of dollars from the American people. At the same time, Trump is raising gas, grocery, and housing costs. So part of the scam against the American people has been to weaken the Securities and Exchange Commission, that is the SEC, so that it is no longer able to enforce securities laws and protect investors. The SEC has done nothing to address several well-documented crypto frauds and suspicious trades, often timed to Trump's press conferences and tweets. If we want to address fraud and scams, we need to look no further than 1600 Pennsylvania. Professor Verstein, you're an expert in insider trading and market manipulation. Your testimony highlights how insider trading, market manipulation, and a weakened SEC can break trust in America's financial markets. On March 23, roughly 580 million in crude oil futures were sold in two-minute window, just 15 minutes before the president announced a halt to strikes on Iranian energy infrastructure. On April 7, 16 investors placed approximately 950 million in bets that oil prices would fall just hours before President Trump announced that the United States and Iran had entered into an apparent ceasefire agreement. There are yet several other examples of individuals placing abnormal amounts of bets on specific government actions or announcements using the prediction market platforms. Please explain how the future of the SEC to enforce the securities laws and otherwise detect and prevent fraud can hurt our markets. What should the SEC be doing to enhance confidence in the financial markets?

Well, this goes to the basic building blocks of a successful financial market. Financial markets don't operate spontaneously without any support. They operate if people feel like they're going to get a basically fair shake. In a human sense, ordinary investors don't take their money out from under their mattress if they think they're playing on an unfair field. But even sophisticated investors, big cybernetic trading firms, high-frequency trading firms, everybody at the top of the food chain too cares about whether they're trading against somebody who is getting secrets from the White House or from some government official. People don't play the same way if they think that there's no accountability. Trading costs rise, liquidity falls, capital withdraws from markets, and a culture of trust erodes. And it's not hypothetical. There are places in the world where the markets fail because an unraveling occurs as people think, well, I'm going to be cheated so I might as well cheat, or I shouldn't participate if I'm not willing to cheat. Cultures of trust built on foundations of law are really hard to build and they're worth maintaining. And I am concerned that if we make it common knowledge that the SEC is under-resourced and unable to do its part, then people will begin to take for granted that more is permissible and less is safe than we want.

So I mentioned the prediction markets. Do you think that the president knows and is understanding or is participating in some way in the prediction markets?

Well, I wish I knew. I mean, I'm a reader of the newspaper like everybody else. The newspaper stories look pretty suspicious. There are suggestions that the president knows friends of his are doing well in these markets and has bragged about it. But I would say the important point is not that I can point the finger and say this was illegal, this was inappropriate. It's that people are led to wonder. These look like suspicious trades. They are consistent with leaks from the White House. They might not be leaks from the White House. We would feel better as ordinary Americans reading the paper if we knew a robust CFTC, a robust SEC, a robust congressional subcommittee were all examining these things and then reporting back, hey, everything is squeaky clean, let me show you, or hey, we found some problems, but everything else is fine.

Thank you very much. I yield back.

Gentlelady yields back and the chair now recognizes the chair of our task force on monetary policy, Mr. Lucas of Oklahoma, for five minutes of questioning.

Thank you, Chair Wagner. And I'd like to enter into the record this letter from the Securities Industry and Financial Markets Association on the work their members are doing on combat to combat fraud.

So ordered.

Thank you, Madam Chair. And thank you to witnesses today for being here and sharing your expertise on a threat that unfortunately continues to persist across the entire country. Mr. Michel, you mentioned in your testimony the prolific use of new and emerging technologies to facilitate fraud and scams. What are the trends you are noticing in the past several years as it relates to the abuse of innovation and technology?

Thank you for the question, Representative. One of the key things that sort of underpins the entire mess is the proliferation of these issuers that list on national exchanges. Once that the issuer lists, it's available everywhere and the liquidity that underpins that is global. Furthermore, the use of what I will call industrial AI across encrypted platforms is what makes the speed very hard to get our arms around. So the access to liquidity, the national exchanges at which they trade on, and the ability to promote these things 24 hours a day has decimated the retail investor over the past couple years.

And continuing to you, Mr. Smith, how could Congress streamline efforts across multiple agencies and jurisdictions so that we can have a coordinated approach to combatting fraud?

This is a complicated ecosystem that the adversary is leveraging. And so it takes multiple entities to have a successful resolution to it. Efforts that encourage information sharing, efforts that encourage bringing the right scale to the fight is going to be helpful for investors and for the capital markets.

How have agencies specialized in certain aspects of fraud response and how can others benefit from increased collaboration and the lessons learned?

Yeah, so one of the things that, you know, with our unique position as an SRO, we have a subset of this ecosystem that we can see. And we can leverage our expertise in that fight, but there's also other entities who have skill sets and authorities. So law enforcement has the ability to seize assets when we've identified that there's proceeds from criminal activity. And the more that we can connect that and enable entities to take action, we've seen some positive results over this last year in the small-cap fraud space where DOJ and the FBI seized over $214 million based off a referral from a firm to us about activity and then we reached out to the government.

Ms. Gunther, we all know the old line about an ounce of prevention is worth a pound of cure, particularly when it comes to financial fraud. What are the most effective mitigation techniques in preventing these crimes before they affect investors?

Yeah, one of the most important things people can do at the financial institution level is really to put that speed bump in, which gives people the, gives the investor the time to think about, hey, something's going wrong. It also gives the institution the ability to also look at, hey, we need to do an investigation. It's that speed bump that we've found in a random control study is the most helpful for both the victim but also for the institution as well.

Thank you. And thank you, Madam Chair, I yield back the balance of my time.

Gentleman yields back and the chair recognizes the gentleman from Georgia, Mr. Scott, for five minutes of questioning.

Thank you very much, Chairlady. I want to address my questions to Mr. Verstein, is it? I've got to get Verstein. Am I pronouncing that right, Mr. Verstein?

Yes, perfectly, thank you.

You know, I think I would like for you to tell us what can we do here in Congress addressing this issue? Now, I'm trying to do something along with my partner, Congressman Loudermilk. He and I are working on a bill that will address some of these concerns. And our bill really is a legislation. It's called the SEC Data Protection Act alongside, of course, I mentioned with Congressman Loudermilk. We can do something, and we need to know as we move this legislation, what do we need to do? And what we're going to be looking at is the vulnerabilities, the bad actors, and how do they access this information? But when you're doing a bill and we want to respond to it, I want to hear from you the experts, what would you like to see in our bill? What must be in there number one to address the concerns that you raised?

Thank you. Well, I would say there are three things that I would propose that a member of Congress looking at this area would do. The first is a suite of things to largely reverse the defanging of the SEC. The SEC in the past may not have been perfect, but I think we've overcorrected.

You said defanging?

What I mean is the reducing of staff, the reducing of the consolidated audit trail. I would say these trends are not good trends for the SEC. It would be better if the SEC had enforcement capacity, funding, and surveillance capacity. So that would be the first thing would be to reestablish those parts of the SEC.

How bad is that situation, the lack of the talent in there to do this? Our bad actors are outnumbering our people that can stop them.

Well, I think the situation, as you've heard from the members of the witnesses down here, is pretty bad. There's an army of fraudsters out there, and so having staff sufficient to deal with elder fraud shouldn't mean you can't deal with pump and dump, shouldn't mean you can't deal with insider trading. So having enough staff to actually do the work is vital. The second thing would be to make sure that we're taking common sense prophylactic approaches to government officials trading. I don't think any government official should have a Polymarket account. I can't see any justification for their family members having one. So we should have stronger rules to prevent not just insider trading, but the appearance of insider trading or the possibility of it. And then third, yes, Congressman, did you want to...

Yeah, now Reuters had an excellent article in here, and I want to share it with you. It was they highlighted a decline in the SEC's enforcement measures by 20 percent. Excuse my coffee. It probably agreed with me. But how do you address that? I mean, are you aware of that?

I'm terribly sorry to say the noise from the hallway was so loud I couldn't really hear the question. I'm sorry to say that.

Reuters article had highlighted a decline in the SEC's enforcement measures of 20 percent in the latest fiscal year. Yes. And on top of that, a staffing reduction also of, well, they have 18 percent.

Yes, I Congressman, I'm sorry to make you repeat that. Yes, it's true, these staffing cuts are real, they're huge, they're significant, they're worrying to me. It's true that any organization needs to change things from time to time, it's okay for the chairman to reshuffle, but I think it looks like an overcorrection to me.

Would that be something that you would recommend that Congressman Loudermilk and I kind of...

I would recommend that you fund and staff the SEC robustly, and then we can debate which the relative priorities are, but I think it needs to be funded.

Good, thank you.

Gentleman yields back, the chair recognizes the chair of our subcommittee on National Security, Mr. Davidson of Ohio, for five minutes of questioning.

Thank you, Chairwoman, and to our witnesses, thank you for your work in preparation for this and your testimony and your participation today in today's hearing. Very timely hearing when you look at safeguarding American citizens against scams, I think there's no real partisanship here, and I've been really encouraged by the work I've had with Ranking Member Beatty on confronting that with respect to traditional scams. When you look at some of the scams in the capital markets, there's been a long time concern that, you know, you've seen a rise of what have historically been known as pump and dump scams where you see something hyped and then then there's a rug pull later. Some of that is allegedly taken place in crypto and for the longest time, really since 2017 when the initial coin offering market was going on, I started working with colleagues to produce market clarity. Back then we called it the Token Taxonomy Act, and the SEC has recently put out their own taxonomy, and I think that's the goal is to make a clear bright line test for when something is a security and when something's not a security. And so, Mr. Smith, maybe to start with you, how important is it that we get those clear rules of the road versus regulation by enforcement?

So in my experience both in law enforcement and here in FINRA, having clarity as to what what things are, what the rules are in road in the road are important, and taxonomy is really important to that. It's why we focused on, you heard me talk about the key services of how the adversary is using cyber-enabled tactics to enable pump and dump schemes, to enable BEC, to enable romance fraud and ransomware. That taxonomy that we've used is now pervasive, and so everyone understands that those are key and areas to address those frauds, and is a great example of if we all are focused, we understand what the problem is, then we understand where we fit within it and how we then can address it.

Thank you. And I think one of the things that you see increasingly is like cross-border and, you know, I think the other thing is you look at particularly with crypto, people are saying, well, does this token really represent real voting rights or real control of a company? But on the other hand, every Chinese company that's traded in America is effectively a proxy. You don't really control that. What kind of safeguards do we have for cross-border fraud in those cases? Does anyone want to weigh in on that issue?

Yes, certainly we have a responsibility in those areas where it's a member firm or a registered rep that's involved in those transactions, and we will take action when we see an issue. Where we've seen instances where we do not have authority, that's when we partner with other entities like law enforcement and hand it off to them.

And so the broker dealer does have some liability, some risk for their recommendations and their due diligence in that sense, correct, to the SEC?

They can, yes.

So Mr. Michel, could you kind of come in on that when you look at kind of the the role and importance of broker dealers and maybe maybe also, you know, part of the appeal in the market is to get more democratic access to capital. I mean, with only, you know, less than 5 percent of the world's population, we've got more than 50 percent of the world's invested capital, our markets are incredible, but a lot of the reach we've wanted to see is to get, you ordinance Americans to have easier access to this. So how what's the role of the broker dealer there and why why isn't it just a plain accredited investor and it's my money I can do what I want?

Thank you for the question. The broker dealers are the front lines. And I think FINRA, you know, I formed a broker dealer, I ran one, so we consistently hear that messaging. One of the key things that we can do is give them an environment from which they can... Thank you for the thank you for the question. The broker dealers are the front lines, and I think FINRA, you know, I formed a broker dealer, I ran one, so we consistently hear that messaging. One of the key things that we can do is give them an environment from which that they can evolve into the various threats that face them and ultimately the retail investing community. So by having a framework that allows their regulatory posture to kind of meet the threat as it evolves is critical for for preserving exactly what you're asking.

Yeah, okay. Well, thank you for that. And as the tools evolve, I think probably the biggest threat and we'll surely cover that some is artificial intelligence. I was encouraged to see Secretary Bessent and Chairman Powell and others talking about Claude as a tool or, you know, ongoing roles of these kinds of tools. So Congress really isn't kept up with privacy laws, let alone artificial intelligence. What should we be doing or is an executive order enough? Mr. Michel, you got a thought on that?

Again, you know, that's not really my lane of expertise in terms of the policy aspect of this, but the phenomenon that you're describing in pump and dump is certainly observable and firms need to be able to evolve to protect themselves from that.

Thank you. I yield.

Gentleman yields back, the chair recognizes the ranking member of our task force on monetary policy, Mr. Vargas of California, for five minutes of questioning.

Thank you very much, Madam Chair, and I appreciate this hearing, I think it's been very good, and I appreciate all the witnesses here today. Professor Verstein, I did hear the conversation between yourself and Mr. Scott, I mean the cuts at the SEC, having sufficient staff. Could you go into that a little bit further because I do think that one of the things that makes the the capital markets so robust in our country is the SEC's disclosure and the world class staff that we have there policing this. So could you go into a little bit more depth about that because I think that that is a problem.

Well, I think we should distinguish between ordinary politics of different administrations liking different things out of an office from the nuts and bolts issue of of what talent is there and how capable you want the capacity of this group to be. The SEC is a 100-year-old organization with a blue ribbon history and at its best it is commendable in every way and at its worst it makes some mistakes. I think we've seen an overcorrection though. I think there are really talented people that we've seen...

Overcorrection in the sense of what?

Well, I think you know, we had we've had Republican administrations with robust enforcement and Democratic administrations with robust enforcement. There's there are ways to have robust, talented, well-resourced SECs without having without axing all the talented people.

All right. Thank you. You know, two of the things that really jumped out at me today was this, that was said that we no longer have a detection problem, Mr. Michel, you said this, now we have a response problem. And then I heard from a few of you that really, if we could have a brief delay or a pause, that that would be really significant. Mr. Smith, first of all, thank you for your service in the FBI. We appreciate that. And thank you for your work at FINRA. Could you comment about that?

Yes. As I talked about, just as a case agent working these things, very often you would see instances where people just went along. They were embarrassed, they didn't want to ask a question, they didn't understand something. And so putting a speed bump in to get the information that the investor needs can be helpful, because at the end of the day, what we want is rational decisions that are made that are not based off a sense of...

But what does that mean? I mean, what does that mean in a practical sense? So, you know, you're trying to pull money out of your mutual fund or whatever. What does that mean if someone's trying to screw you overseas? What does that mean? What does it mean to put a pause in there to ask the question?

Yeah. So in that instance, it would be that the firm is asking the potential victim, how did you get in contact with these individuals? What is it that you're investing in in this? Oh, this is now a micro-cap stock that you're investing in and you've always been in blue chips. And so it pauses them. And then if there's a trusted contact in the family who can help them through this, because the other thing that we've seen with particularly elderly victims is that they have coached them through how to respond, and having that trusted contact from a family to help is really beneficial to prevent fraud.

Okay. Ms. Gunther, you said that there should be something similar, but there should be no liability. In other words, pause it, stop it a little bit, but no liability to the firm. Could you talk a little bit more about what that means?

Yeah. So I can talk a little bit about it is a liability to actually report the financial exploitation. And I wanted to key on something that was said earlier about older investors. One of the things that's so important about a trusted contact is we know from psychology, somebody needs to be told from three different people that something's amiss before they realize and they get out of that fight or flight. And that's why this speed bump is really critical, but also that trusted contact who can be one of those three people so they can realize that something's amiss.

Okay. I have about a minute left. So what I do want to say this, of course, I agree with the insider trading. I don't think that politicians, anybody, should be able to trade individual stocks or on future anything like that. We should have our investments in mutual funds and that's that. We shouldn't be able to pick winners and losers because again, we do get a lot of information. I hope we pass that law. I've always been in favor of that. I have my money in mutuals so I don't pick individual stocks. But we did talk about technology today, and I think that that is an important thing, AI and other things. How really can that help here to make sure that we don't have more fraud? Because also we heard from Mr. Smith that it also hurts the other way. Technology is also improving the way that the thieves rip our money off.

That's right. This is part of why I'm concerned about the decline of the consolidated audit trail. I think one of the great things that AI lets you do is use the information you have to be more effective, and that's why you want to have good information. So having the SEC have at its fingertips all the personally identified information, all the brokerages, all the transaction history, I understand that it's expensive, but it's valuable.

My time's up and I thank the chair. Thank you. Yield back.

Thank you. The gentleman yields back and the chair recognizes the chair of our subcommittee on digital assets, Mr. Steil of Wisconsin, for five minutes of questioning.

Thank you very much, Chair Wagner. Appreciate you holding today's hearing. Before I begin my questions, I just want to return to a previous colleague's assertion about tokenized securities. In particular, there's an assertion made that it would make it easier for insider traders to trade on non-public information if the security was tokenized. That's not true. And so to be clear, placing a security on a blockchain does not confer any special treatment. It does not alter its regulatory status. It remains a security and must comply with all applicable laws and regulations. I think that's really important to put that back in the record based on the previous assertion that was made. Now I want to dive into my comments. U.S. capital markets are the envy of the world. There's really no second when it comes to U.S. capital markets. They provide families with low-cost ways to save, to build wealth, and they give companies the opportunity to raise capital and create jobs here in the United States of America. Increasingly, a lot of our capital markets are under threats from fraudsters and criminals. And a majority of Americans are encountering scams. The dollar amounts are staggering, in particular with our seniors. The FTC reported it was $16 billion, but if we assume that there's underreporting, which I think we all agree with, it's significantly higher than that. It's not a partisan issue. It's something we need to be working with broadly to prevent this from occurring. I want to start with you, Mr. Smith, if I can, based on your work with FINRA. In your opening testimony, you were talking about the landscape dominated by international actors who are using technology to exploit jurisdictional gaps across countries and regulators and evade prosecution. Want to dive into that and identify some of the jurisdictional or regulatory gaps that international criminals are leveraging to the detriment of U.S. capital markets and U.S. consumers. Can you comment on some of those jurisdictional and regulatory gaps?

Certainly. When you're dealing with an adversary that's located across the globe, the rules that they operate under vary. I saw this when I was at the FBI of the law enforcement capabilities you have that. You also see that within the regulatory environment. And so we have to recognize that a problem in another jurisdiction could very quickly become a problem within our jurisdiction. And so that's where the concept of engagement and partnership and collaborations is key. We've seen some success in this of bridging some of those gaps where we've done information sharing with our partners in Japan on the small-cap fraud space and let them know what we were seeing. They then let us know about new activity with new account fraud and account takeovers involving cyber means, which encouraged it, which informed our membership. If you can replicate that...

Great. Are there specific jurisdictions that are causing you concern?

You know, within the small-cap fraud space, that's particularly concerning with us with the issuers that are coming out of China. And that's why we've pushed a significant amount of intelligence out about that to firms to let people know what we're seeing in that space.

So a lot of that is about jurisdictions policing their own jurisdiction. Is that what you're saying, in particular as it relates to China?

At times, yes, it can be.

Let me jump to you, Ms. Gunther, if I can. Criminals are perpetuating fraud scams, becoming increasingly sophisticated. AI can work in two ways, right? They can work to create scams, they can also work to prevent scams. Can you talk about this balance about how we can leverage AI to prevent the scams that are occurring, but also the risks that AI is bringing?

Yeah, absolutely. And thank you for the question. AI is both a tool for good and for evil. One of the ways we really encourage financial institutions to use artificial intelligence, machine learning, they can detect patterns faster to stop this crime. But then it's also important to, with artificial intelligence, is then you have got to train someone for that human touchpoint to tell that victim. The other thing is that artificial intelligence can also be used by criminals to scale the scams. They're using bots and other things, but it's really critical for financial institutions to use artificial intelligence to recognize those patterns.

I appreciate all of our witnesses for being here today. Ms. Chair, I yield back.

Gentleman yields back and I thank him for correcting the record on tokenization. The chair now recognizes the gentleman from Illinois, Mr. Casten, for five minutes of questioning.

Thank you, Madam Chair. Just briefly, I want to correct something Mr. Steil said. It is true that a tokenized security is a security. The SEC has been very clear for that. It is also true that Section 202 and Section 203 of the Clarity Act says that if you raise a security less than $200 million, you are exempted from those provisions. So this Congress, this committee, has opened a back door if that Clarity Act becomes law. And I think it's important for us to understand that if we care about fraud, let's not pretend that laws we passed, just because they haven't passed the Senate yet, does not represent the intentions of this committee. Not yours truly, but this committee. I'm happy to have this hearing. I'm grateful to Chair Wagner for doing this and support your efforts in the legislation you've introduced noticed for this hearing. It's extremely timely. On Monday, I did a, coincidentally, I didn't know this hearing was coming, did a roundtable back in the district specifically on senior fraud with seniors. And the statistics we're hearing, they just come out in all of these stories. Sat with a credit union who's sitting there saying, we don't actually have the ability legally to prevent a senior from withdrawing their money to put it through, but we try to put practice in. And they told this story about going through two levels of escalation within their bank and finally persuading a senior that the Hollywood celebrity who she claimed was her husband and needed money for a home repair was highly unlikely to be her husband because they'd never met and was therefore highly unlikely to also need money for a home repair. And they were ultimately able to stop that, but they had no legal authority to prevent that. This was just about persuasion. And I'm grateful for the work you're doing with BankSafe and others. But the consistent sort of nexus of all this fraud was some combination of social media and crypto ATMs. And I guess I just want to start, leaving the tools aside for a minute, and I don't know, Mr. Smith or Mr. Verstein, if either of you want to comment on this. Can you clarify if I convince you to transfer money to me for fraudulent purposes, what is the statute that I have violated and what is the penalty if I'm found guilty and who is the enforcement agency that chases that down?

I'm happy to take a stab at this. I have written about crypto in the securities context and I have, I think, the only article on crypto and insider trading.

Okay. And I'm and I'm not even really asking about crypto. I'm just saying like I show up and I tell you I tell you a lie that gets you to give me money.

Section 10b of the Exchange Act says that if there's a purchase or sale of a security and there's a material misrepresentation or omission in connection with that, that's a that's a fraud and a violation of the 34 Act. So that's a civil and can be a criminal violation just like any anytime your broker misleads you about whether you're sending money to the right person or something that that can be.

Okay. And what if I what if I tell you that I'm Matt Damon and you and I are married and I need $10,000 for a home repair and you give it to me?

As part of you know as long as that's a material misrepresentation it might be.

Okay. Okay. So now does that same statute apply if if I am abetting that crime? So I I connect the I connect the mark to the perp and I get a fee in exchange for that service. Am I also I don't know is that going to RICO? Like am I also liable in that case?

Well there's RICO, there's aiding and abetting and there's scheme liability. All three are kind of theories that float around the underlying violation.

Okay. And that's a felony?

It can be yes, yeah. Absolutely.

Jail time? Financial?

You can get yes, you can get jail time if those things are established.

Okay. So given what Mr. Sherman and others have raised that the Reuters reporting that Meta something like 10 percent of their income has come from connecting from these you know these fraudulent scams do those could those tools be applied to Meta if a prosecutor wanted to apply them or is that exempted because of you know all of our other rules around social media?

I'm not sure whether it's the social media exemption. My guess would be that that would be that their awareness of these issues would be something we'd really look at. We'd look at whether there's scienter. If Congress wanted that to be illegal what Meta's up to, Congress could clearly clarify that it's illegal. Right now I think it would be an unclear thing whether a court would determine that that is a violation of our law.

But so but so the implication is that Meta could do something potentially and not violate the law and not be subject to penalties that I as a I as an individual could not do.

I think the we're in country that's new. We haven't had enterprises like Meta for many years and so.

I'm I'm close on time. Same question for crypto ATMs because some of these Bitcoin sales in the ATMs they're getting 15, 50 percent markups. So they're profiting from monetizing these transactions. Could the law apply to them?

I think it it ought to be the case that that law applies there. I think the law under the Commodity Exchange Act which is not subject to this committee's jurisdiction is probably weaker than for securities.

Okay. Well we're out of time but let's welcome any thoughts on how we get those regulated in the same way that other criminals are regulated, reward the same behavior, incentivize the same behavior and if it's a money transfer business regulate it like one. And my time's expired. Yield back. Thank you.

Gentleman yields back and the chair recognizes the chair of the House Homeland Security Committee Mr. Garbarino of New York for five minutes of questioning.

Thank you Madam Chair for having this hearing and thank you the witnesses for being here. Before I ask questions I have a request to enter a letter from OTC Markets in support of legislation being considered here today into the record.

Without objection.

Thank you. The U.S. securities regulatory framework relies in part on self-regulatory organizations like FINRA which operate under the oversight of the SEC. Unlike purely external regulators, FINRA has continuous access to firm-level data, conducts routine examinations and enforces compliance standards within broker-dealers. That proximity allows for earlier detection of suspicious activity, faster intervention and more practical insight into how fraud develops in real-world marketing settings. It also positions FINRA as a first line of defense in identifying emerging risks before they escalate. Mr. Smith, how does the SRO model and FINRA's proximity to firms help identify and reduce fraud?

We are in a very unique position because of the authorities that we have and the insight that we have into the markets that others don't. And that is an advantage that can be leveraged by investors, it's an advantage that can be leveraged by firms for better protection and then the knowledge and expertise that we can provide to then government entities and regulators of really stitching together expertise and authorities that individually none of us have and that's why the model has worked so well for us and it we've seen results from that of late of where we've informed entities about threats that are coming their way and we've been able to reduce and prevent fraud because of what we see that otherwise they would never have seen before.

Thank you very much and just following up on something my colleague Mr. Steil was talking about, recent research from FINRA Investor Education Foundation highlights that younger investors are increasingly turning to social media platforms for financial information and investment ideas. This shift has exposed them to a growing number of fraud schemes including influencer-driven promotions, crypto scams and coordinated pump-and-dump activity. The speed and reach of online content can amplify misinformation and make it more difficult for traditional safeguards to keep pace. These trends raise concerns about investor protection in a rapidly evolving digital environment. Mr. Smith, what is FINRA doing to address this issue?

Yeah it's natural that the younger generation is getting their investment advice from social media because that's where they are. And so that's where the bad guys go. So one we try and engage in a lot of investor education, inform individuals particularly younger individuals about the risks and about where they're getting information so they can make informed decisions. In addition we're partnering with technology companies and in certain instances we've identified fraud that's been occurring on some of their platforms and alerted them to some of the indicators of that which then they've been able to put a stop to the activity on that platform.

Thank you. Mr. Michel, how have you seen market participants adapt to this trend?

We're certainly seeing the advent of you know these the proliferation of online platforms driving liquidity through these names that's ultimately been hyped on these these institutional platforms. So to the extent that the the trading platforms can either disclose to their client that this is ongoing or if the platforms themselves the Metas of the world can you know step in with a with a a heavier hand to to reduce this you know we can kind of make a better more of a dent in the problem.

Have they been stepping in? Have you seen them step in with a heavier hand?

Who specifically?

Meta and the.

We've not, no.

All right thank you. I'm going to switch gears here for my last minute. Cyber-enabled threats including account takeovers, ransomware and AI-driven impersonation are increasingly targeting financial institutions, market infrastructure and retail investors often by sophisticated and sometimes foreign-based actors who exploit gaps in coordination and information. CISA, the Cybersecurity and Infrastructure Security Agency plays a central role in safeguarding critical infrastructure by facilitating threat intelligence sharing. Mr. Smith, how important is the reauthorization of CISA 2015? We have it's reauthorized through September 30th but expires after that. How important is the reauthorization to strengthening cybersecurity coordination and protecting U.S. capital markets from increasingly sophisticated cyberattacks?

Information sharing in the cyber arena is critical to success. We recognize within an ecosystem they're attacking a bunch of different targets and if we can identify IP addresses, we can identify the VPN services that they're using and share that amongst entities, it gives us a chance to actually identify who they are and then the ability to then respond to that.

Would we be less safe if this if this lapses?

I can't speak to the individual legislation on that. I can speak to the just general information sharing is critically important.

All right. Thank you very much. I yield back.

Gentleman yields back, the chair recognizes the ranking member of our subcommittee on digital assets Mr. Lynch of Massachusetts for five minutes of questioning.

Thank you Madam Chair. I do believe this this hearing is very timely. Combatting fraud, that's the name of this committee. And you know if we are really interested in combatting fraud I I would suggest where we could look. I even have the address. 1600 Pennsylvania Avenue. 1600 Pennsylvania. That is fraud central. Frauds-R-Us. They should have that sign on the on the front of the White House as they're doing it all over. And it is no secret. President Trump has gutted enforcement at the SEC which is responsible for protecting investors and and consumers. He's reduced the staff by 20 percent. His SEC chair Mr. Atkins has has dropped some of the most notorious cases. He's dropped a case against Justin Sun. Justin Sun just so you remember he he made about $400 million for the Trump family. He also dropped cases against the Winklevoss twins who donated 21 million to a a PAC that supported Donald Trump. And he would have dropped the case against Changpeng Zhao, the CEO of Binance, but he was a little late because Changpeng Zhao had already pled guilty to money laundering. He had pled guilty. So what did Trump do? Trump pardoned him. Changpeng Zhao invested $2 billion in Trump's World Liberty Financial benefiting the family tens of billions of dollars which excuse me tens of millions of dollars which which they netted. As the SEC has retreated, as we have as the Trump administration has cut enforcement, dropped the number of cases, they no longer I think their their enforcement actions are down by 30 percent compared to the previous administration. As the SEC retreats from securing America's capital markets, the Trump administration is fostering a culture of corruption plain and simple. Since the beginning of the second Trump administration, a disturbing pattern has also evolved in the prediction markets where large trades are placed just hours or minutes leading up to a major announcement by President Trump which posts massive profits after news of the announcement has broken. The serendipitous timing and scale of those trades would suggest that those placing them had prior knowledge of the White House's intentions and they raise serious concerns that the president and his associates knowing that those announcements are almost always result in large market swings are purposely manipulating the markets and sharing confidential government information which puts our sons and daughters in uniform at risk in order to enrich themselves, their family and their friends. There's a I have a select number of cases. I know the the ranking member of the full committee has already mentioned some of these but the Trump tariff announcements netted people hundreds of millions of dollars in terms of Trump announcing relaxation of some of those tariffs. One particular investor had placed $51 million in short positions in hours leading up to the post regarding regarding the attacks on Iran and made approximately $170 million in profit after the story broke, after the announcement broke. Suspiciously, this is amazing. This one individual of the last 16 trades that individuals made all 16 posted large gains like the aforementioned instances. This individuals and others who shorted oil prices would appear to have prior knowledge of President Trump's announcements. Why aren't we looking at that? Why is not the SEC in the middle of an investigation on that? Mr. Verstein, you know there's plenty of evidence out there. What should our our cops on the beat be doing right now in light of all this evidence?

Congressman Lynch, the optics are terrible. The stories that you're citing are are in the media. People read them and they wonder why nothing is happening. This is not a court of law. We don't know which incidents were illegal and which were not, which were dumb luck and which were not. But it's really important that the American people and that traders.

16 case 16 times in a row though that that's more than luck.

It's very suspicious and we we really wish the SEC, the CFTC were looking at these cases and reporting back yes we found wrongdoing in this case, we didn't find it in that case. Clearing people's names is also part of the job but you've got to have robust enforcement in order to do that credibly.

Thank you Madam Chair. I yield back.

Gentleman yields back and the chair reminds members to avoid engaging in personalities or imputing motives of another member or the president of the United States. The chair now recognizes the gentleman from New York Mr. Lawler for five minutes of questioning.

Thank you Madam Chair and thank you all for being here today. Rampant pump-and-dump stock schemes frequently involve small Chinese companies listing on U.S. exchanges. Most use the variable interest entity structure which gives shareholders interest in an offshore shell company rather than actual equity and rights. Mr. Michel, does the VIE business structure contribute to the rise in rampant pump-and-dump schemes?

Thank you for the question. It is certainly tangential to the problem but we've seen domestic issuers experience this phenomenon as well. So while most have that structure, there are other kind of complicating factors within these small issuers that make them susceptible to to the phenomenon that we witness.

Ms. Gunther, the committee continues to hear from families and older Americans who are being targeted by increasingly sophisticated scams. AI-generated impersonations, remote access fraud and high-pressure social engineering tactics to drain savings in minutes. Financial institutions are trying to keep pace but the threat environment is evolving faster than the tools designed to stop it. Your work with AARP's BankSafe initiative gives you a unique vantage point on what actually works on the ground and where the gaps still are. And so with that in mind, I'd like to explore the landscape of solutions and challenges. What do you see as the biggest barrier or challenge facing the financial industry in the fight against exploitation?

Thanks so much for the question. One of the largest challenges we see, and you mentioned this, is that there is so much attention, we're really getting into being reactive and not proactive. We're waiting until it gets to the point of transaction. And what we really need to do is look at where is it that criminals, what methods are they using to contact consumers? So telecom, social media, those types of things, and having faster takedowns so criminals aren't even allowed, even have the ability to contact that consumer. That way we're staffing off so that we're not having to be so reactive at the financial institution level or even in the law enforcement.

With that in mind, I mean, the reality is scammers are exploiting new technologies, new platforms, new psychological tactics at a scale we haven't seen before. And while banks are investing heavily in fraud prevention, the criminals are adapting just as quickly to get around it. And that's why understanding where true innovation is happening and what's actually making a measurable difference is important to this committee. So what innovations are showing the most promise in detecting and stopping these scams?

Yes, thanks for the question. So we did a study with Virginia Tech to really look at what are the interventions that actually stop the money from leaving the account. About 200 financial institutions participated. The number one thing is when you are able to hold that transaction. That gives time to the institution to conduct investigation. It also gives time to that consumer to slow down, get out of that fight versus fear response. And then the other thing that's really helpful is a trusted contact, right? We know that people have to hear it from three different people before they realize something's amiss. So having a trusted contact at that financial institution that they can call and say, hey, something is amiss, you might want to call your parent, is really, really helpful. Also asking the right questions, training people at the front lines of saying, hey, asking, you know, where did you meet this person? You know, what is this for? Asking those questions is really, really helpful to get to the end of it of is this suspicious.

Mr. Smith, one of the most heartbreaking patterns we hear about in our districts is seniors losing their life savings in a matter of hours, often after a fraudster has coached them through a transaction step-by-step. Firms can sometimes see the red flags, but by the time anyone intervenes, the money is already gone and almost impossible to recover. FINRA's proposals around temporary holds and trusted contacts are clearly aimed at giving firms more room to act. From where you sit and based on what Ms. Gunther said, how often do you see situations where a longer hold or earlier intervention would have prevented a senior from losing their savings?

It's hard to get to quantify that of the prevented fraud and say how many times we've seen that, but we certainly see instances where when firms have the information they need to ask the right questions, that slow down that transactions, that people make different decisions than they would when they're being pushed into this by an adversary.

Thank you, I yield back.

Gentleman yields back and the chair recognizes the gentleman from Texas, Mr. Gonzalez, for five minutes of questioning.

Thank you, Madam Chair. Ms. Gunther, we often say retirement is a three-legged stool: Social Security, personal savings, and pensions or investments. But right now, that stool is already unstable for millions of Americans. According to recent retirement readiness data, only about 45 percent of Americans feel financially prepared for retirement, and 78 percent are worried about inflation eroding their savings. At the same time, we're seeing an explosion in financial scams. What concerns me is that for many seniors and near-retirees, personal savings is the most vulnerable leg of that stool. It's also the one they've spent decades building and the one that can be wiped out in one swoop. How are these escalating scams undermining retirement solvency for seniors in America and what more can Congress be doing right now to protect that critical leg of our retirement system?

Yes, thank you for the question, Representative. There is a lot that we have done and there's a lot more to be done. As you mentioned, you know, people are losing the average according to the FBI is $38,000. If it's a known other that is the perpetrator, it's $120,000. That's typically what a 50-year-old has in retirement savings. So in a blink of an eye, they can lose everything. One of the most important things, and I'll say it again and again, is that we need to get at the point of where is this criminal contacting the consumer and taking those things down when they're on social media, when they're advertisements, whether it's telecom, getting at the point of the front of the upstream is really, really critical. Having trusted contacts is another one. Having a speed bump for holding that transaction is also training front lines so they know how to deal with this. Right, people are in a fight versus flight. How do you calm that person down? And we know statistically that one out of two times that front-line worker talks to that consumer, they're able to get them out of that fear bubble, that fight versus flight, and actually stop the money before it leaves the account.

Are we doing enough in communicating to seniors in this country about the risks that are out there?

We, we are doing a tremendous amount in terms of educating consumers, but we're not doing enough. And the fact of the matter is we want to get it before anybody ever communicates with the consumer.

How are we communicating to them? How are we educating seniors of these scams?

There is a variety of different education. So we run AARP's Fraud Watch Network. We do events all over the country, really educating people, not only just older adults, but also their children and caregivers. Government agencies are also doing that, but we have to have effective communication. But we really do need to go beyond just communicating to the consumer. Right, these are hard-working Americans. They're raising their families, they're working their jobs, they're going home, fixing their houses, they wake up the next day and they do it all over again. They don't have time to read consumer disclosures, terms and agreements. They deserve to have a government have a critical role in preventing financial exploitation.

And if I could add, sir, one of the key components in that is that we got to get to the investors, but we also got to get to the institutions that are having those conversations with them, which is why FINRA has done a lot of work engaging with broker-dealers and reps, leveraging the expertise of AARP so that we have multi-layers of defense in there and some resiliency.

Very well, thank you. My next question is for Mr. Verstein. Mr. Verstein, last year I was proud to lead a provision included in the House version of the Clarity Act that would direct the Department of Treasury to study and strengthen resources for the Securities and Exchange Commission and Commodity Futures Trading Commission to better address the misuse of digital assets in money laundering, but the urgency of this issue is only growing. Recent FBI reporting shows that Americans lost $11 billion to digital asset fraud last year alone. That staggering, that's an a staggering 37 percent increase in cyber fraud. And while we often think about seniors being targeted, this isn't limited to one group. Younger investors, and I think we talked about that earlier, tend to be more willing to take risks and engage in emerging technologies, are increasingly exposed to these schemes as well. Professor Verstein, from your perspective, what additional resources or information sharing authorities should Congress provide to help federal regulators and law enforcement to better combat digital asset fraud and what are the key coordinating gaps between Treasury, the SEC, and the CFTC that need to be addressed?

Congressman, I commend you for bringing this issue to the table. The fact is that digital assets are a part of our money laundering and our fraud landscape. Whether or not that's because of intrinsic features to the assets or just because of the marketing that is now associated with them, the razzmatazz of a new thing that attracts a different kind of ignorant person to lose their money on them, they're where the action is. And so we need to be giving the resources to people to focus on these and develop the expertise to coordinate from one agency to another.

Thank you, and I look forward to continuing this conversation. We are out of time, thank you, I yield back.

Gentleman yields back and if I could take a point of personal privilege, I can say that in our own district, we do have a program called Beat the Cheats and we go among our senior communities and vulnerable citizens with a full template I'm happy to share with you about how to for them to avoid this, including a hotline for them to even call. So I'd be pleased to share.

I think it's a real education effort that we need to push.

I couldn't agree more. So anyway, the chair now recognizes the gentleman from Iowa, Mr. Nunn, for five minutes of questioning.

Well, thank you, Chairman Wagner, and I appreciate you holding this meeting on fraud. Look, before I begin, I'd just like to ask for a show of hands if you or one of your loved ones or someone you know has gotten that call. There's something urgent, we need to talk to you, you're going to deposit your money here, only later to find out that you've become a victim of fraud. I see our AARP folks in the background too, all raising your hands. This is an impact which is outsized. In my home state of Iowa, I briefed this committee last year on the grave threat coming from fraudsters. At that point, $52 million was lost to fraud and that's just in a farm state like Iowa. Well, Madam Chair, I'm sad to say that today that number has jumped to almost $100 million. So in less than 12 months, we've nearly doubled the amount of fraud loss happening on the front lines in a hometown community. But that number should all stop us cold in our tracks when we realize who is the target of the types of fraud we're talking about. In Iowa, the average victim was over 60 and lost $9,000 last year. This year, that's quadrupled to a loss of nearly $37,000 per individual. This is catastrophic. It is wiping out a family's wealth, but it's also destroying their future. This is no longer a trend. This is now a real crisis impacting each of us. Behind every one of those dollars is a real person: an Iowa farmer, a Des Moines retiree, an Ankeny small business owner. And the worst part about this is, those dollars aren't being taken by a criminal down the street. In too many cases, they're being actioned by foreign governments. They're being perpetrated by slave labor camps in South Asia and they're being taken over shores to fund some of the very horrific events that are happening to Americans right here on our own shore. That's why I believe that there are two bills that I've led on that deliver a direct one-two punch to go after our scammers. The first is the GUARD Act. It arms our state and local law enforcement with blockchain tracing technology to follow the money before it disappears offshore. So that when you get that phone call and you call the sheriff, their answer is, I'm sorry, they'll have to report it to the FBI. The second aspect is the TRAPS Act. And the TRAPS Act brings together our banks, our telcos, our tech platforms, and our local law enforcement, both at the hometown level all the way up to the federal level, to be able to really go after this and trap these fraudsters before they proliferate their behavior. And Madam Chair, I would offer we cannot wait another year to act on this important legislation. Now, Ms. Gunther, I want to thank you and your team at the AARP for all the work that you've done. You've been a strong supporter of GUARD and TRAPS Act. Do trusted contact designations and report and hold authorities give frontline employees at a small Iowa community bank enough authority to stop a transaction before this money disappears, do you believe?

Thank you for the question. The trusted contact and report and hold authorities are critical tools, but they're not enough on their own. As you mentioned, fraud starts upstream. We have to stop the criminal from contacting the consumer. Efforts like the TRAPS Act are really, really important. We've got to get more on the legislative and law enforcement arena, but we also need to get ahead of this as well. And it's essential for then the TRAPS Act to have and to create innovative ways and to get people to share information so we can stop these scams entirely.

I totally agree with you. And we shouldn't put all the responsibility on both the individual and the local lender, our banks, our community lenders to have to do this. Getting upstream is probably the best possible way to get after this comprehensively. So Mr. Michel, I'm going to turn to you because when we talk about comprehensively, we recognize that criminals extracted an estimated $16 billion last year through pump and dump schemes. As a result, 25 percent of small capital Chinese IPOs show manipulation. At what point does a red flag appear clearest, and do we have the authority and the data to act before a retail investor would be impacted by this?

Thank you for the question. And I can really only speak to our platform and how it identifies such things. So since we launched the platform about 18 months ago, and we've issued 40 alerts where we've captured $15 billion worth of documented harm, a median lead time of 19 days prior to the loss event. Our work product has also supported multiple SEC Section 12(k) halts of issuers suspected of manipulation.

Very good. Mr. Smith, very quickly, my TRAPS Act creates a Treasury-led task force to drive coordination across agencies. Does the information sharing between FINRA, the SEC, FBI, and other state regulators move fast enough to stop these type of ramp up dump schemes, and would the TRAPS Act help?

I can't speak to the legislation, but I can speak to that the more and faster information sharing that we have, the better off investors will be.

Thank you very much, Mr. Smith. That's exactly what the TRAPS Act does. Thank you, Madam Chair, I yield back my time.

Gentleman yields back. The chair now recognizes the gentleman from Montana, Mr. Downing, for five minutes of questioning.

Thank you, Madam Chair. And thank you for the witnesses for being here. I'm going to start off just correcting the record on a point one of my colleagues made, the comment that the Clarity Act creates a loophole to exempt individuals from complying with securities laws if you raise under a certain amount for a digital commodity project. So I just want for the record to say that that is utterly false. Under the Clarity Act, the SEC retains jurisdiction over insiders' disclosures and obligations such as lockup requirements on related parties where digital commodities are involved in a capital raise. And furthermore, the Clarity Act reaffirms that the SEC maintains robust anti-fraud and anti-manipulation authority. So any claim that the Clarity Act allows insider trading is unfounded, it's inaccurate, it's just false. So just wanted to get that correction out there. So in 2024, the FBI reported that the costliest type of scams perpetrated on our elders were investment scams totaling a staggering $1.8 billion in reported losses. And as the former securities regulator for the state of Montana, one of my primary responsibilities was to protect investors from fraud where possible and give victims some restitution. And we did a lot of stuff as the securities regulator for Montana. We set up elder justice councils around the state, had some great success in those. I created in my office a financial abuse specialist team that specifically dealt with this type. It was prosecutors, lawyers, folks to help with this. And we saw just so much coming through the state, from pig butchering scams to romance scams to using tech to imitate federal agencies. And we see more and more technology coming in to defraud and scam folks. And we did a lot of public outreach, a lot of tours, fraud summits. And one of the other things that we did that I'm particularly proud of is we had the Lyn Egan Memorial Securities Restitution Fund, which we used to help give relief to folks that were scammed. And that was named after my former deputy securities commissioner who unfortunately we lost a few years ago. So I'm going to start on my questioning with Ms. Gunther. Can you discuss the important role that state securities regulators play in combating fraud? questioning with Ms. Gunther. Can you discuss the important role that state securities regulators play in combating fraud?

Yeah, they can see local patterns, they can do local enforcement. And so they remain a critical piece of the puzzle.

Thank you. Do you consider state regulators or federal regulators like the SEC as the primary enforcer of anti-fraud laws?

I can't speak to that, but what I can say is they're a critical part. Everybody, we need everybody on ground to fight this. As you mentioned some of the horrible statistics, we're seeing losses of up to $196 billion total and that doesn't even target the people who don't realize that they are a victim. And so it's really important to have all government players in this space helping to protect consumers.

Are there any states that you have in mind that you believe have been particularly effective in combating fraud?

What I can say is one of the most effective tools that states can use is the report and hold laws. Right now we have almost all states that have that, but there are a few states that do not. And that is one of the most important things that we found in a study of financial institutions was the number one thing to stop money before it leaves the account.

Right. Well, I appreciate you saying that because that was something that we have some pretty strong delay and report laws in Montana. One of the issues that I ran into as a regulator is the training for folks to actually use those. Because the rules there were pretty simple as long as you had procedures in place and had minimal training, then you could keep yourself out of liability and do that. And as most people in this room know, once the money's out the door, it's out the door. So if you can actually delay that and take care of it, it's very helpful. So appreciate that. Moving on, so I'm going to go to Mr. Smith on here. We know that many scams originating overseas like pig butchering scams come from China. So how do we hold overseas bad actors accountable when they're not easily subject to our jurisdiction or our justice systems and foreign officials who might not be willing to cooperate with U.S. law enforcement?

That's where in our role as an SRO, we have unique insight that others may not have. But we also have limits into our authority and our jurisdiction. And that's where the power of the engagement and partnerships with other entities like federal law enforcement, where they may have a reach in these overseas jurisdiction or they may have partners with other law enforcement that can reach out and put a stop to the activity is critically important.

Right. Thank you. I could go on another 10 minutes, but unfortunately I've run out of time. So on that, Madam Chair, I yield.

Gentleman yields back and I'd like to thank our witnesses for their testimony today. And without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. Questions will be forwarded to the witnesses for their response. Witnesses, please respond no later than May 20th, 2026. This hearing is now adjourned.