How to Protect Yourself Against Online Investment Fraud

When it comes to investment fraud, some people, to quote Bob Dylan, rob you with a fountain pen. But these days, they are more likely to long on to social media sites to scam you.

Facebook, YouTube, Twitter, and LinkedIn have become breeding grounds for investor scams that go beyond those ubiquitous emails from strangers who want you to help them distribute their vast wealth to charitable organizations in the United States (but first: bank account information, please). In one recent case, an Illinois man, Anthony Fields, offered securities through LinkedIn and other social media sites. He is not registered with the Securities and Exchange Commission as a broker/dealer. But he represented himself as such and beginning in 2010, made “fraudulent offers: of more than $500 billion. The fraud was discovered before anyone lost their money to him.

The anonymity of social media sites allows scammers to nurture relationships with potential victims by accessing personal information and using that to build a false sense of trust.  Social Media Week (yes, it’s a thing), is a good opportunity to review common online investment fraud schemes and tips to remain on guard against scammers. The SEC recently issued an Investor Alert about social media investment risks. One of the most common is the “Pump-and-Dump,” in which false and misleading statements about a company’s stock are posted on social media sites, as well as on bulletin boards and chat rooms. Readers are urged to buy a stock quickly or to sell before the price drops, while the perpetrators, usually company insiders, stand to gain by selling their shares after the stock prices is “pumped” by the buying frenzy. Once they “dump their shares, the stock price tumbles and investors lose their money.

Another, the SEC cautions, involves online newsletters that could be tools for fraud. Some companies pay online newsletters to recommend their stock (not illegal as long as the newsletters disclose who paid them, how much, and in what form). But scammers often lie about payments and their track records in recommending stocks. “Fraudulent promoters may claim to offer independent, unbiased recommendations in newsletters when they stand to profit from convincing others to buy or sell certain stocks.” And just because these newsletters may be advertised on legitimate websites, does not mean they are not fraudulent.

What are some of the red flags for which investors should watch? The SEC offers:

∙If it sounds too good to be true, it probably is.

∙The promise of guaranteed returns.

∙Pressure to buy RIGHT NOW

The North American Securities Administrators Association (NASAA) also warns to watch for:

∙A supposedly low-risk investment that promises a high return

∙An investment opportunity with foreign operations

∙Offers of a bonus for signing up friends

∙Little concrete information on a referred website

∙No prospectus or other written information