The SEC recently released two separate Investor Alerts involving investors and use of social media, focusing on what investors can do to avoid potential fraud. We thought it would be worthwhile to provide a brief synopsis of both articles as they provide some excellent, easy to implement tips.
Part I – Avoiding Fraud
Social media is an attractive playground to criminals intent on committing fraud as it provides a platform to contact multitudes of potential victims at little to no cost. The SEC advises on some key pointers that can be key in avoiding this type of attack. - Unsolicited Offers to Invest
o It generally goes without saying that someone contacting you out of the blue with an attractive offer is something to be wary of, but the important thing to note is how professional and personalized these offers can be made to look in this day and age. Even if something looks extremely official, approach any unsolicited offer with extreme caution.
- Affinity Fraud
o This is a new term given to an old trick. The SEC recommends avoiding investment decisions solely on the recommendation of a member of an online group or organization to which you belong. Scammers here prey upon your feeling of community or identifying with a like-minded individual. Sometimes the person bringing you the opportunity maybe someone you have known for years, but were scammed themselves and are passing the danger along. Do your due diligence on your own as you would with any other investment opportunity.
- Market Manipulation
o Schemes known as “pump and dumps” have been around for a long time. Someone uses false or misleading information to drive up the price of a stock just in time for them to sell their shares before the stock tanks. The same tactic can be used in research reports or newsletters where writers are paid by companies to tout a given stock or investment. Social media allows for all kinds of new ways to promote investments in fraudulent or unethical ways. Always consider a person’s motivations for promoting an investment opportunity or company. If it’s such a can’t miss opportunity, why are they telling everyone they can via Facebook or another tool rather than just keeping it to themselves?
- High Yield Investment Programs
o These are unregistered investments that make the promise of providing a higher yield than is generally available in the market, often with little or no risk. Some of these offers use the term “prime bank”. Lots of return, very little risk is always a dangerous and often fraudulent combination. Turn and run the other way.
- Common Red Flags
o As with anything in life, beware of anything that sounds too good to be true, promises anything guaranteed (especially returns) or pressures you to buy immediately. The trick here is that with interest rates at historic lows, scammers can promise relatively low returns and still turn a few heads, but it still doesn’t mean it’s a legitimate opportunity or a good idea.
Part II – Securing Your Accounts
- Passwords
o The bottom line is to use different passwords on different accounts and make sure the password is extremely challenging. Use passwords to secure your mobile devices as well, especially if they have access to your social media accounts.
- Links
o Tread cautiously when clicking on links, even if sent by a friend. If the link looks funny or the message does not sound like a typical message a friend would send, simply delete.
- Privacy Settings
o The default privacy settings on many social media sites may not offer adequate protection. Take the time to go in periodically (sites will update available settings often) and customize your privacy settings to minimize the amount of personal data available.
- Requests from Financial Professionals
o Perhaps most importantly, always know that no financial institution, advisor or other investment related organization should ever ask you for personal data, account information, social security numbers, etc. via a social media website. Any request should be ignored and reported to proper channels.
The bottom line as with so much in life is “buyer beware”. If something sounds too good to be true or can’t miss, than it most likely is. If you want more detailed information on any of the above or care to see links to real-life cases where these incidents have taken place, you can find the original SEC reports below.
Have a great week!
Chip Workman, CFP®
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