Earnings Call - MITEK SYSTEMS INC

Good morning and welcome to the District of Columbia and I can give you good news and tell you that in spite of the fact that two years ago the district had the fourth highest homicide rate in the nation, equivalent to some third world countries, we now are in a position of having the lowest homicide rate in the district in decades, if not in history. So all is going well in the District as it relates to violent crime. However, I am here to talk to you about a different kind of crime. And I consider it a privilege to be able to talk to you at the American Bankers Association at your annual Anti-Money Laundering and Fraud Conference. Your work is absolutely essential to the safety and the stability of our financial system. Now, you heard that I launched the Scam Center Strike Force in November of 2025. We set out at that time to confront a fast-evolving threat, a transnational criminal organization, most of them in Southeast Asia, running massive cyber-enabled fraud operations. These groups have defrauded Americans out of billions of dollars. And today, I want to speak to you directly about how we fight them and how your industry can help us shape some of our biggest successes. First, the scale of the threat. Americans are being industrially looted, and the people doing the looting are literally factories. It's a mainstream massacre that is being run on a slave labor industry. Not basement scammers, mind you. These are factories. Compounds that have shifts and quotas and even balance sheets. And they also have beatings. And even the United Nations Office on Drugs and Crime has estimated that transnational groups that own them make as much as nearly $40 billion a year in profits. And reported losses to Americans from crypto investment schemes that come out of those compounds have blown past the originally thought $5 billion, $6 billion, and $7 billion to now $12 billion estimated by the State Department in 2025. But the truth is, that's not even the reality. The truth is that most victims don't even bother to report these crimes, either because of shame or embarrassment, or some of them don't ever know to whom they should report. Now, last month, I spoke to several victims whose cases are pending in my office, being investigated by my strike force and their comments to me were heartbreaking and I want to take a moment to share the human side of what happens in these scams one involved a father of three daughters who faced imminent foreclosure at his home of his home as a result of falling prey to a crypto investment fraud scheme he was a single father of children one of whom is disabled and because that one is disabled he is limited in terms of the number of hours that he can work so that he doesn't lose his Social Security so he struggles every month to pay his bills and also to pay for one of his daughter's medications he has one sick child agents when we first contacted him we warned him that he was being scammed. At that time, he was moments away from taking out another loan from his credit union. By then, he had lost nearly all of his life savings, and he was at that point on the brink of losing his home. Because his part-time work affected his eligibility, as I said, he couldn't increase his hours. So he was in a bad spot. He said, my daughter, My third daughter, as soon as she could drive, was able to get a job at Wal-Mart. But I thank God that the DOJ jumped in and has helped us tremendously. They've helped me keep my mortgage and keep the creditors off my back. It's been a hard road, but I have only myself to blame for this. I hear from others who have the same issues once I share my story. Another victim was a medical doctor. He had recently lost his wife. He was sad. He was depressed. And he was in a period of deep grief when he lost a large sum of money after the loss of his wife, he knew that something was wrong, but he felt vulnerable and isolated. We were able to intervene because we were able to identify that his money was starting to go into fraudulent blockchains. It goes to WhatsApp, and then it continues to go down. He says, it wasn't until the agent stepped in and called me that I realized that I was in the middle of a scam. The scammers repeatedly tried to get him to move conversation onto apps like WhatsApp to avoid detection he shared that he is now back with his family who wanted to disown him because he was selling his home he was leaving his family for this woman from across the ocean that they had never met that he was about to marry he said I can't believe that the scammers would spend so much time invested in me and that's why I kept saying to myself this can't be a scam they spend too much time with me he now understands that it's a global issue and that it is not just about him but the federal government now in combination with you in this room can break an industry that is built to hide in the seams between countries and apps and bank wires to start let's call it what it is it is not online fraud these compounds are engaged in a business that seals retirement accounts home equity a lifetime of savings the last dollars a widow thought were safe these compounds also engage business that involves human trafficking. Men and women themselves respond to employment articles and say they want to work, they go to another country, they are then taken in a van, they lose their passports, and they end up in compounds in Burma, Cambodia, and Laos. And now, as we just realized or proved last week in West Africa, we are now moving in India and Eastern Europe. And we know that the people in these compounds are forced to meet quotas. If they don't meet these quotas, they are beaten. They are tortured. They They're told that other family members will be brought into the compounds as well. Countless people on the other end. This is not a collateral issue. This is their business model. Now, they are engaged in a business that literally produces a war chest. $40 billion a year. It doesn't sit in a mattress. it buys protection, it buys relocation, and new compounds. Now, what have we learned about these criminal networks? What we know is that these individuals who operate the compounds operate like CEOs of multinational criminal enterprises. They control compounds that traffic workers into forced labor. They run call centers specializing in romance scams, law enforcement impersonation scams and crypto investment fraud. They actually are now using AI to create convincing personas, voices, faces, entire identities to lure Americans into fraudulent relationships. These are not amateurs in basements. These are organized, resourced, and global. And our Scam Center Strike Force is responding in an organized, resourced, and mobile way as well. So how do we identify the bad actors? First, the truth is we use every tool in our arsenal that's available to us. Human intelligence, foreign partnerships, digital forensics, blockchain tracing, and yes, the work that you do in banks. Suspicious activity reports and currency transaction reports are absolutely critical to identifying not only the scammers themselves, but the complex money laundering operations that are usually run by Chinese criminal actors that are washing the proceeds. You see, the SARS and the CTRs have revealed patterns, layering rapid fiat to crypto conversions and unusual access devices, large flows to new exchanges that have helped us to identify crypto wallets tied to scam compounds in Burma, Cambodia, and Laos. Those same reports have assisted us in mapping out the laundering networks and identifying key targets of our investigations. Now, how we work. We work with Treasury, FinCEN, OFAC, State, and Commerce. One of the strengths of this strike force is the interagency structure behind it. We don't work in silos. We work together. Treasury's OFAC has been indispensable. For example, OFAC sanctioned Cambodian Senator Kok An and 28 individuals and entities associated with his scam network, a network that stole millions from U.S. victims. That action was coordinated with my office, allowing us to cut these actors off from the U.F. U.S. financial system at the same time that we pursued the charges. Now FinCEN provides essential financial intelligence, helping us spot new laundering typologies and track global flows. The State Department applies diplomatic pressure, ensuring that countries hosting scam compounds know the consequences of allowing these compounds to operate. This is a whole of government approach. We're bringing law enforcement tools, financial tools, diplomatic tools to them, all to bear at one time. Now how do we target the infrastructure behind the scams? The strike force focuses on disrupting the infrastructure that makes these scams possible. Over the past year, for example, we have seized Starlink terminals used by the scam centers to maintain internet access. In fact, thousands of Starlink terminals have been taken down. We've removed more than 600 fraudulent cryptocurrency investment websites, literally identifying those websites as seized on the page, thus shutting down pipelines that are used to lure victims. We've conducted the first-ever seizure of a telegram channel used to recruit human trafficking victims into scam compounds. In fact, just last month we seized telegram channels hosting the Shinbi Guarantee Network, an illicit marketplace that was set up to provide websites and money laundering services that allows the scam centers to operate we received highly valuable information from Google that made these seizures possible and we've seized tens of thousands of devices from the scam pounds computers and servers and hard drives and cell phones together with meta the most fraud accounts in history are now offline just this past week we took down 3.7 million that we identified and offloaded so every time we take down an infrastructure we make it harder more expensive and riskier for them to operate now our most significant successes including crypto seizures Let's talk results. To date, the strike force has restrained or seized more than $938 million in cryptocurrency tied to scam operations. That's almost a billion dollars in less than a year. In recent operation coordinated with Treasury, in one day we seized $52 million connected to an illicit Chinese-run scam marketplace. These are extraordinary numbers, and they matter because they represent real people's life savings. And for those wondering, are scammers still using traditional assets? Is it all crypto? The answer is that crypto remains the preferred method due to speed and borderless movement that traditional financial assets still play an important role. Wire transfers, mule accounts, prepaid instruments, and even cash-intensive businesses are part of the chain. As for the crypto itself, stablecoins, especially USDT on the Tron network, remain the most commonly used. But we're seeing activity across Ethereum-based tokens and privacy-enhancing coins as well. Now, what can you as banks do to help? Let me be clear. Your role in this fight is essential. Here's how you can help. Keep filing the SARs and the CTRs. SARs are an early warning system, but they have to be done in an effective and timely manner. The truth is that SARS often take months to investigate and approve prior to that information being disclosed to FinCEN and us. It is often stale by the time it reaches us. Is there any way for you to expedite and get us that information sooner so we can act on it and stop it? Add speed bumps. As you know, a majority of the victims of these crimes are elderly Americans. They need you to put prompts into the process, to stop and warn them before they transfer money to scammers. The law permits you to refuse or delay a transaction that you find suspicious. So you are the first line of defense. in information-sharing initiatives. During our Disruption Week, we call it Disruption Week, private industry helps interrupt millions of scam accounts, and we froze more than 3.8 million in laundered crypto. That only worked because of voluntary participation. Raise your hand and participate in these disruption events with us. As many private partners have, Meta, Google, Coinbase, Microsoft, TRM Labs, Binance, we need you to directly engage with us. The Strikeforce has direct engagement with multiple industry partners from tech to AI to crypto providers. When you have a SAR that you think is worthy of our attention, reach out to the Strikeforce. If you want to send us the list of your customers who've reported being defrauded, we'll take them and we'll match them against our own law enforcement records. We want to work with you directly and make sure that action is taken as quickly as possible to stop these scammers and their money laundering organizations in their tracks. The Strike Force is partnered with more than five different law enforcement agencies like Secret Service and the FBI and HSI, and we have 150 agents across the country working with us. We will ensure that appropriate action is taken. And finally, looking forward, the threat is evolving. Criminal groups are spreading into new regions, including Africa, India, and Eastern Europe. They are now, because they know we're after them, breaking into smaller compounds, harder to detect cells, and in some cases, they are now replacing the trafficked workers with AI-enabled tools. But we're evolving too, expanding the strike force globally, deepening partnerships with our allies, using every tool available to follow the money and bring these actors to justice. And we cannot do it without you. Your institutions see the fraud attempts before we do. You see when a customer hesitates or acts under pressure or moves money in ways that don't make sense or are not consistent with their past behavior. You are often the last line of defense before someone loses everything. So I'm asking you, get in this fight with us. Be proactive, be persistent, be bold. Together we can protect American families, we can safeguard our financial system, and we can stop these outrageous criminal syndicates from exploiting our infrastructure and our people. Thank you so much for having me this morning.