File this one under “Do your homework.”

The U.S. Securities and Exchange Commission on Friday filed an action against a man it said had defrauded people out of millions of dollars using a fake online credit union.

Timothy J. Coughlin, 63, of Indianapolis, and Oxford International Credit Union allegedly collected deposits from more than 5,000 investors worth more than $12.8 million over several years, according to a statement from the SEC.

“The defendants posted false information to investors’ online accounts to create the appearance that their deposits in the fake credit union were earning substantial daily investment returns,” the SEC said in a statement. Coughlin and Oxford International Credit Union also falsely claimed that member accounts were insured by a private insurance company, the SEC alleges.

Instead, Coughlin allegedly used people’s money to “pay personal expenses, fund unrelated business expenses and make distributions to other investors in a classic Ponzi-scheme fashion,” the SEC statement says. Coughlin later launched a successor company, Oxford International Cooperative Union, that also defrauded investors, the SEC says.

The SEC alleges that Coughlin misappropriated at least $5.97 million and used investor money for illegitimate purposes.

This is certainly not the first time fraudsters have set up fake banks or credit unions online, and it probably won’t be the last (see: Bankrate’s 2003 story, “Beware the disappearing credit union“).

Consumers need to be diligent about doing their homework before putting their money in a bank or credit union, whether it’s an online-only bank or a brick-and-mortar bank.

Check to make sure the institution is insured by the Federal Deposit Insurance Corp. Look at how sound the bank’s finances are. Bankrate has a simple five-star rating of banks called Bankrate Safe & Sound that could be a good starting point for your research.

Are you planning on switching banks anytime soon? What would make you likely to switch? Here are seven questions to ask before switching banks.

Follow me on Twitter: @allisonsross.

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