Many investors use the internet and social media to help them with investment decisions. Although these online tools can provide many benefits for investors, they can also be used effectively by criminals.
The internet is a useful way to reach a mass audience without spending a lot of time or money. A website, online message, or social media site can reach large numbers of people with minimal effort. It's easy for fraudsters to make their messages look real and credible and sometimes hard for investors to tell the difference between fact and fiction.
If an investment promotion grabs your interest, research the opportunity before even providing your phone number and e-mail address. Otherwise, you may be setting yourself up to be targeted for investment fraud.
The key to avoiding investment fraud on social media sites or elsewhere on the internet is to be an educated investor.
Social Media
Social media—such as Facebook, YouTube, Twitter, and LinkedIn—have become important tools for U.S. investors. Whether they are seeking research on particular stocks, background information on a broker-dealer or investment adviser, guidance on an overall investment strategy, up-to-date news, or simply want to discuss the markets with others, investors turn to social media.
Social media also offers a number of features that criminals may find attractive. Fraudsters can use social media in their efforts to appear legitimate, to hide behind anonymity, and to reach many people at a low cost.
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 Securities and Exchange Commission (SEC) Complaint Center.
Online Investment Newsletters
Although there are some legitimate online newsletters that contain valuable information, others are tools for fraud. Some companies pay online newsletters to tout, promote, or recommend their stocks. Touting isn’t illegal as long as the newsletters disclose who paid them, how much they’re getting paid, and the form of the payment (usually cash or stock). But fraudsters often lie about the payments they receive and their track records.
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. They may spread false information to promote worthless stocks.
The fact that these so-called newsletters may be advertised on legitimate websites—including on the online financial pages of news organizations—does not mean that they are not fraudulent.
Online Bulletin Boards
Online bulletin boards, chat rooms, and social media sites are a way for investors to share information. Although some messages may be true, many turn out to be bogus—or even scams. Fraudsters may use online discussions to pump up a company or pretend to reveal inside information about upcoming announcements, new products, or lucrative contracts.
You never know for certain who you're dealing with, or whether they're credible, because many sites allow users to hide their identity behind multiple aliases. People claiming to be unbiased observers may actually be insiders, large shareholders, or paid promoters. One person can easily create the illusion of widespread interest in a small, thinly traded stock by posting numerous messages under various aliases.
Other online offerings may not be fraudulent per se (pronounced pur-Say and meaning “by definition”) but may nonetheless fail to comply with the applicable registration provisions of the federal securities laws. While the federal securities laws require the registration of solicitations or offerings, some offerings are exempt. Always determine if a securities offering is registered with the SEC or a state, or is otherwise exempt from registration, before investing.
Spam
Spam—junk e-mail—is often used to promote bogus investment schemes or to spread false information about a company. With a bulk e-mail program, spammers can send personalized messages to millions of people at once for much less than the cost of cold calling or traditional mail. Many scams, including advance fee frauds, use spam to reach potential victims.
Many of the frauds that show up on social media are not unique to the internet. These frauds range from pump and dump schemes to promises of guaranteed returns, and from High-Yield Investment Programs to affinity fraud.
In New York, as in other states, investors are protected by both state statutes and federal law against fraudulent investment schemes, including those perpetrated through the internet and social media. The New York State Attorney General's Office enforces laws against securities fraud, which include deceptive practices related to online investment newsletters, social media solicitations, and other internet-based investment promotions. At the federal level, the Securities and Exchange Commission (SEC) oversees and regulates the securities industry, and it provides a platform for investors to report suspicious activities through its Complaint Center. The SEC requires that investment promotions be truthful and that newsletters disclose payment information if they tout stocks. Online offerings must comply with registration provisions of federal securities laws unless they are exempt. Investors are advised to verify whether a securities offering is registered with the SEC or a state, or is exempt from registration, before investing. Additionally, spam used to promote investment schemes is regulated under both state and federal laws, including the CAN-SPAM Act at the federal level. New York investors are encouraged to be educated and cautious, especially with unsolicited investment offers, and to conduct thorough research before committing to investment opportunities.
