The Internet and social media are used by many investors to assist them with investment decisions. Although these online instruments can provide investors with several advantages, these same tools can make offenders tempting targets. Criminals are able to adapt to emerging technology, and no exception is the Internet.
Without wasting a lot of time or money, the Internet is a convenient way to reach a mass audience. With minimal effort, a website, online message, or social networking platform may reach significant numbers. For fraudsters, it’s easy to make their messages seem genuine and trustworthy and often difficult for investors to tell the difference between truth and fiction. Even before supplying your phone number and email address, investigate the “opportunity” if an investment promotion captures your attention. You might otherwise be setting yourself up to be targeted for investment fraud.
Being an educated investor is the secret to preventing investment fraud on social media platforms or elsewhere on the Internet. See What You Can Do to Stop Investment Fraud to learn about practical steps you can take. Below, we tell you where online social media, online investment newsletters, online message boards and chat rooms and spam will reveal different forms of fraud.
Read also: Get Your money back from scammers.
For U.S. investors, social media, such as Facebook, YouTube, Twitter and LinkedIn, have become main instruments. Investors turn to social media, whether they are looking for analysis on individual securities, background information on a broker-dealer or investment advisor, advice on an overall investment plan, up-to-date news, or simply want to discuss the markets with others. There are also a variety of features provided by social media that criminals may find attractive. In their attempts to appear credible, to hide behind anonymity, and to target many people at a low cost, fraudsters may use social media. See these Investor Notices and Bulletins for additional information:
Always be wary of unsolicited offers to invest. Unsolicited sales pitches may be part of a fraudulent investment scheme. If you receive an unsolicited message from someone you don’t know containing a “can’t miss” investment, your best move maybe to pass up the “opportunity” and report it to the SEC Complaint Center.
Online investment newsletters
Although there is useful information in legitimate online newsletters, some are resources for fraud. Some businesses pay to “tout” online newsletters or recommend their stocks. As long as the newsletters reveal who paid them, how much they are being paid, and the method of payment, typically cash or stock, Touting is not illegal. Yet fraudsters also lie about the fees and their track records that they earn.
When they stand to benefit from convincing others to buy or sell those stocks, fraudulent promoters can claim to give independent, impartial recommendations in newsletters. In order to promote worthless stocks, they can spread false information.
The fact that such so-called ‘newsletters’ can be promoted on legitimate websites, even on news organizations’ online financial pages, does not mean that they are not fraudulent. Read our tips for checking out newsletters to learn more.
Online bulletin boards and chat rooms
A way for investors to exchange knowledge is through online message boards, chat rooms and social media sites. While some messages can be real, many, or even scams, turn out to be bogus. Fraudsters may use online discussions to pump up a business or claim to disclose details about upcoming announcements, new items, or lucrative contracts ‘inside’.
For sure, you never know who you’re dealing with, or if they’re trustworthy, because many sites allow users to hide their identities behind multiple aliases. Insiders, major shareholders, or compensated promoters can simply be individuals pretending to be impartial observers. The illusion of widespread interest in a small, thinly traded stock can easily be generated by one person by posting multiple messages under different aliases.
Such online deals may not be fraudulent per se, but may still fail to comply with the applicable federal securities law registration requirements. Although federal securities laws require applications or “offerings” to be reported, certain offers are excluded. Often decide if before investing, a securities offering is registered with the SEC or a state or is otherwise exempt from registration.
“Spam” is also used to facilitate fraudulent investment schemes or to disseminate false information about a business. Spammers can deliver customized messages to millions of individuals at once for much less than the cost of cold calling or traditional mail with a bulk e-mail program. To meet potential victims, many scams, including advance fee frauds, use spam.
Many of the hoaxes that surface on social media are not exclusive to the Internet. Such fraud ranges from “pump and dump” schemes to “guaranteed returns” guarantees, from “High Yield Investment Programs” to fraud of affinities. See Forms of Fraud to read more about these frauds.