ACAT Scam

ACAT Scam

ACAT Scam Explained: How Thieves Can Transfer & Liquidate Your Brokerage Account Fast

We discuss an “ACAT scam” involving the Automated Customer Account Transfer Service (ACAT). This system was created in 1985 to quickly move accounts from one broker to another.

Tom describes how transfers once took weeks. But now transfer requests must be approved in one business day and moved within three business days. This quick process allows assets to be sold immediately upon transfer. And with one-day trade settlement, funds can be paid be out as soon as the next day.

An ACAT scam can occur when your personal data is used to open a new brokerage account at a different firm. Then an ACAT transfer is initiated, and positions can get rapidly liquidated… before the victim ever notices.

DIY investors ought to monitor accounts, enable alerts and consider using 2FA.

Senators Ron Wyden and Elizabeth Warren have taken an interest in changing how these transfers happen.

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ACAT Scam Transcript

I want to talk to you today about this ACAT scam that’s been going on for a few years.

It must be becoming a real thing.

Because two senators are now starting to get involved in trying to address this ACAT scam.

Let me backtrack and talk a little bit about the ACAT system in our industry.

And how this scam has unfolded in just the last few years.

ACAT, or the ACAT system in our industry, stands for Automated Customer Account Transfer Service.

Believe it or not, this was only begun in 1985.

And what the system is designed to do is to move your account from broker A over to broker B easily and quickly.

The reason why it was set up was because prior to 1985, you had to basically fill out a form….. or send a form….. to your old broker that you wanted to get away from.

And ask them to ship your securities from their firm over to your new firm.

And what would happen is we didn’t have email, we didn’t have, in some places, didn’t have fax machines.

They would get the instructions in some places, and it would sit in somebody’s bottom drawer for a few days or a few weeks.

Not cool.

Not the way to do it.

Now it was set up to be automated.

And if you’re a New York Stock Exchange member firm, you were a member of the ACAT system.

The way the system works today…… if you want to move your account from broker A to broker B, you would open an account at broker B.

And then sign an ACAT transfer form.

It used to be that you needed to provide a recent statement, something within the last few months from the old broker.

You had to give that to the new broker.

Now, they’re not being nosy.

They just wanted to know, like, “Hey, is this a real account?

And what are some of the positions we should be expecting to arrive….. when the account lands at the new firm?”

And the way the system….. used to be back in the ’80s, it would be,

“Okay, come back in about four weeks and your transfer will be done.”

Now (today), firms have one business day, ONE business day…… to approve the transfer!

And they’ve got this many days, three business days….. to move all the positions from point A, from broker A over to broker B.

The funny thing is, when they started ACAT back in 1985, they could only move stock positions at the time.

You weren’t able to move mutual fund positions until 1989.

It was really clunky.

Things have gotten a lot better.

So how does this scam work with ACAT transfers?

Well, it starts out the way a lot of these scams start.

Someone impersonates you.

Someone gets your information.

And they’ve got enough of your information where they can open an account at a brokerage firm with your name, your date of birth, your Social Security number.

Enough information to open an account.

Then they initiate a transfer from your old firm to your new firm.

Let’s hit the pause button and just think about this for a minute.

They’ve got your information.

They’ve got your name, your address, your date of birth, your Social Security.

They’ve got a lot of information.

They may have a cell phone number.

But most importantly, they’ve got your brokerage account number at the old firm.

So what happens is this imposter now sets up a new account at a new firm.

And they initiate an ACAT transfer from the old firm over to the new firm.

So, transfers happen fast now.

They happen, as I mentioned, they have to be approved in one business day.

The assets move within three business days.

And I say within three business days because we now see transfers happening one or two days.

It is really fast the way things go.

Unlike when you deposit a check at a bank or a brokerage firm, you know, that might take a few days, maybe a week sometimes, to clear till the funds are available.

When you do an ACAT transfer….. and those positions move from broker A to broker B, they’re eligible to be sold right away.

And they usually are.

They get sold instantly.

And now settlements on trades take one business day.

Back in 1985, 1986, when ACAT began, it would take four weeks to transfer things through ACAT.

But it would take trade date plus five, five more business days, another week, to have that money actually available.

Things are happening really fast.

So when those positions land at a new brokerage account, they can be sold instantly.

And with one-day settlement, those funds can be paid out in one day.

So you sell something…… the positions land on Tuesday, you can sell them on Tuesday, they can pay out the funds on Wednesday.

It’s fast.

You may not even be aware of it.

You have to really be paying attention to this.

So for individuals that are do-it-yourselfers, what do you do?

The first thing is you should be checking your account.

And checking it frequently, maybe every single day.

You should set alerts, notifications, so that you’re aware when things are happening in your account.

Don’t disregard these things as junk mail. They’re not.

Two-factor au- authentication, for as much as a hurdle and a pain in the butt that it can be, it’s worth looking into setting up on your brokerage account.

If you are an advisor who’s watching this video, you get a notification when an account is transferring out.

For goodness sakes, call the client.

Call up the client on the phone, and if for ANY reason your client says, “I didn’t authorize that. I didn’t … I don’t know what you’re talking about,” don’t hang up the phone.

The two of you should make a conference call immediately to the broker.

Like, for instance, we use Schwab.

It’s definitely worth a phone call to the broker and tell them, “Hey, we didn’t authorize this. The client wants to rescind…… or stop….. this transfer from happening.”

You really have to be vigilant when it comes to things like this happening.

And as I mentioned at the top, it, it’s got to be a real thing.

We first heard of this in 2023.

But now two senators are starting to get involved, Ron Wyden from Oregon and Elizabeth Warren is also getting involved.

But ACAT scam, I guess, is a thing that’s not going away.

It just boggles me.

They used to require that you had a recent statement to submit with your ACAT transfers.

But now everything is online.

If you’ve got an account number that matches, that position is going to go.

I think, you know, if these member firms want to slow down or possibly prevent these scams from happening, require a copy of a statement.

Just an idea.

Something to watch out for.

Thanks for watching ACAT Scam