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SOCIAL MEDIA AND INVESTMENT FRAUD – INVESTOR ALERT

Aug. 29, 2022


Fraudsters often use social media to scam investors.  The SEC’s Office of
Investor Education and Advocacy encourages you to be skeptical and never make
investment decisions based solely on information from social media platforms or
apps.

Investors increasingly rely on social media for information about investing. 
While social media can provide many benefits to investors, it also creates
opportunities for fraudsters.  Social media allows fraudsters to contact many
people quickly, cheaply, and without much effort – and it is easy for fraudsters
to post information on social media that looks real and credible. 

Fraudsters may disseminate false information anonymously or while pretending to
be someone else.  They may make up credentials, create entirely fake profiles,
or impersonate legitimate sources.  It can be difficult to track down who is
behind a social media account, and anonymity can make it harder for fraudsters
to be held accountable.  

Testimonials and Celebrity Endorsements.  Do not be swayed by testimonials or
celebrity endorsements when making an investment decision.  Fraudsters sometimes
pay people – for example, actors to pose as ordinary people turned millionaires,
social media influencers, and celebrities – to tout an investment on social
media.

Investment information found in social media also may be inaccurate, incomplete,
or misleading.  Social media may convey false impressions of consensus or
legitimacy, making it look like large numbers of people are buying an investment
when this is not the case.  Fraudsters may use social media to lure investors
into a variety of schemes, including impersonation schemes, “crypto” investment
scams, romance scams, market manipulation schemes, and community-based
investment fraud.  Here are a few scams you should be aware of:

IMPERSONATION SCHEMES

Fraudsters may impersonate legitimate brokers or investment advisers or other
sources of market information on social media.  For example, fraudsters may set
up an account name, profile, or handle designed to mimic a particular individual
or firm.  They may go so far as to create a webpage that uses the real firm’s
logo, links to the firm’s actual website, or references the name of an actual
person who works for the firm.  Fraudsters also may direct investors to an
imposter website by posting comments in the social media account of brokers,
investment advisers, or other sources of market information.

When you receive investment information through social media, verify the
identity of the underlying source.  Look for slight variations or typos in the
sender’s account name, profile, email address, screen name, or handle, or other
signs that the sender may be an imposter.  When contacting a company or
attempting to access its website, be sure to use contact information or the
website address provided by the company itself, such as in the company’s SEC
filings.  Similarly, only contact a broker or investment adviser using contact
information you verify independently – for example, by using a phone number or
website listed in the firm’s Client Relationship Summary (Form CRS).  Carefully
type the website’s url into the address bar of your web browser.

Some social media operators have systems that may help you to determine whether
a sender is genuine.  For example, Twitter verifies accounts for authenticity by
posting a blue verified badge (a solid blue circle containing a white checkmark)
on Twitter profiles.  While a verified account does not guarantee that the
source is genuine, readers should be more skeptical of information from accounts
that are not verified.

Fraudsters may even impersonate SEC staff on social media.  Like many companies
and agencies, the SEC maintains a list of verified social media accounts, which
is available at www.sec.gov/opa/socialmedia.

Fraudsters have also found victims by hacking into social media profiles and
sending fraudulent investment opportunities to the hacked person’s contacts.  Be
wary if someone – even someone you trust – sends a social media message
recommending an investment, and be sure to check with them “off-line” to make
sure that person actually sent the message.

“CRYPTO” INVESTMENT SCAMS

Fraudsters may exploit investors’ fear of missing out to lure investors on
social media into “crypto” investment scams.  “Crypto” assets are marketed using
a variety of terms, including digital assets, cryptocurrencies, coins, and
tokens. 

How do you know if an investment involving “crypto” assets is a scam?  As with
any other type of investment product, if a crypto investment “opportunity”
sounds too good to be true, it probably is.  Promises of high investment
returns, with little or no risk, are classic warning signs of fraud.  Fraudsters
may post fabricated historical returns on their websites showing high investment
returns.  Depictions of investment accounts rapidly increasing in value and
providing large returns are often fake.  

If you are considering a “crypto” asset-related investment, take the time to
understand how the investment works and look for warning signs that it may be a
scam.  Carefully review all materials and ask questions.  Check out the
background (including license and registration status) of anyone offering you an
investment in securities using the search tool on Investor.gov.

Learn more about investments involving "crypto" assets on Investor.gov.

ROMANCE SCAMS

Romance scams through apps or websites have become increasingly pervasive as
fraudsters take advantage of anonymity to mask their deceptive intentions.  The
fraudster may be located in another country and communication may be exclusively
through messaging due to language barriers.  Do not invest money based on advice
from someone you have solely met online or through an app.  Do not share any
information relating to your personal finances or identity including your bank
or brokerage account information, tax forms, credit card, social security
number, passport, driver’s license, birthdate, or utility bills. 

The FBI issued a Public Service Announcement about fraudsters using romance
scams(link is external) to persuade victims to send money allegedly to invest or
trade cryptocurrency.  How these scams typically work is the fraudster
establishes an online relationship with the victim through a dating app or other
social media site.  The fraudster gains the victim’s confidence and trust, and
then claims to know about lucrative cryptocurrency investment or trading
opportunities. The fraudster directs the victim to a fraudulent website or app.
 After the victim invests and sees a purported profit, the website or app allows
the victim to withdraw a small amount of money, further gaining the victim's
trust.  The fraudster then instructs the victim to invest larger amounts of
money and conveys a sense of urgency.  When the victim tries to withdraw funds
again, the victim is instructed to pay additional funds, claiming that taxes or
fees need to be paid or a minimum account balance must be met. When the victim
can no longer pay the additional funds, the fraudster stops communicating with
the victim and the victim cannot get the money back.

Other agencies and organizations also have issued warnings about romance scams,
including:

 * NASAA Informed Investor Advisory: Romance Scams(link is external)
 * CFPB blog: Break up with online romance scams(link is external)
 * CFTC Customer Advisory Customer Advisory: Avoid Forex, Precious Metals, and
   Digital Asset Romance Scams(link is external)
 * FTC Consumer Alert: Love, not Money(link is external)

Be careful if someone claims to offer you an investment opportunity that is
exclusive or based on “inside” or confidential information.  Do not take comfort
because someone encourages you to make an investment through what appears to be
a third party website or app.  The fraudster may be behind the website or app,
and it may be a scam.  Also, be wary of any “opportunity” that requires you to
use “crypto” assets (for example, Bitcoin or BTC) to purchase an investment.

If you encounter any issues withdrawing your money from an investment, do not
put in more money to try to get your money out, and submit a complaint to the
SEC.  If you believe you have been the victim of an Internet crime, report it to
the FBI’s Internet Crime Complaint Center IC3(link is external).

Do not be pressured to act quickly.  Take your time to research an investment
thoroughly before handing over your money.

MARKET MANIPULATION SCHEMES

Fraudsters can manipulate the share price of a company’s stock (either
positively or negatively) by spreading rumors on social media. Fraudsters then
profit at investors’ expense.  Fraudulent stock promotions on social media can
take various forms, including memes.

Fraudsters may promote a stock on social media anonymously or while pretending
to be someone else.  Fraudsters can set up new accounts specifically designed to
carry out their scam while concealing their true identities.  Be skeptical of
information from social media accounts that lack a history of prior postings or
that contain minimal original content.

Fraudsters may use social media to conduct schemes including: 

 * Pump and dump schemes – pumping up the share price of a company’s stock by
   making false and misleading statements to create a buying frenzy, and then
   selling shares at the pumped up price. 
 * Scalping – recommending a stock to drive up the share price and then selling
   shares of the stock at inflated prices to generate profits.
 * Touting – promoting a stock without properly disclosing compensation received
   for promoting the stock. 

In other instances, fraudsters start negative rumors urging investors to sell
their shares so that the share price plummets and then the fraudsters buy shares
at the artificially low price.

Microcap Fraud.  Microcap stocks (low-priced stocks issued by the smallest of
companies), including penny stocks (the very lowest priced stocks), are more
susceptible to market manipulation.

Exercise extreme caution if there appears to be greater promotion of the
company’s stock than of the company’s products or services.  Be skeptical
regarding new posts on your wall, tweets, direct messages, emails, or other
communications you did not ask for that promote a particular stock (even if the
sender appears connected to someone you know). 

COMMUNITY-BASED INVESTMENT FRAUD

Fraudsters often use social media to perpetuate community-based investment fraud
(aka affinity fraud), which targets members of groups with common ties,
including based on ethnicity, nationality, religion, sexual orientation,
military service, and age.  These scams exploit the trust and friendship that
exist within groups. 

Many communities use social media as a way to stay connected and share
information.  Fraudsters, who may be (or pretend to be) part of the group they
are trying to cheat, may solicit potential victims on social media through posts
or direct contact.  Fraudsters also may enlist group leaders, who then spread
the word about the scheme on social media.  Those leaders may not realize the
“investment” is actually a fraud, which means they too may be victims.

Know who you are dealing with and know what is being offered – even if you have
something in common with the person.  Type the person’s name into the search
tool on Investor.gov to do a background check.  Confirm that the person is
currently registered or licensed, and find out if that person has
any disciplinary history.  

***

Check the background of anyone selling or offering you an investment and confirm
that the person is currently registered or licensed.  It only takes a few
minutes using the free and simple search tool on Investor.gov.  

Before making any investment, research the company thoroughly.  Make sure you
understand its business and carefully review publicly disclosed company
information. 

Never feel pressured to buy an investment right away.  It can be tempting to
jump on the band wagon and follow whatever the crowd seems to be doing on social
media.  Sometimes, however, following the crowd may lead you to fall victim to
an investment scam. 

ADDITIONAL RESOURCES

SEC Charges Siblings in $124 Million Crypto Fraud Operation that included
Misleading Roadshows, YouTube Videos

SEC Charges Social Media Stock Promoter with Penny Stock Fraud

SEC Obtains Asset Freeze and Other Relief in Halting Penny Stock Scheme on
Twitter

Protect Your Social Media Accounts

Investor Alert: Thinking About Investing in the Latest Hot Stock? Understand the
Significant Risks of Short-Term Trading Based on Social Media

Investor Bulletin: Social Sentiment Investing Tools —Think Twice Before Trading
Based on Social Media

Social Isolation and the Risk of Investment Fraud

Report possible securities fraud to the SEC online at www.sec.gov/tcr.

Protect your hard earned money – learn more tips on investing wisely and
avoiding fraud at Investor.gov.

Call the SEC’s Office of Investor Education and Advocacy (OIEA) at
1-800-732-0330, ask a question using this online form, or email OIEA
at Help@SEC.gov(link sends email).  Receive Investor Alerts and Bulletins
by email or RSS feed.

Follow OIEA on Twitter(link is external) @SEC_Investor_Ed. Like OIEA
on Facebook(link is external) at facebook.com/secinvestoreducation.

 
This Investor Alert represents the views of the staff of the Office of Investor
Education and Advocacy. It is not a rule, regulation, or statement of the
Securities and Exchange Commission (“Commission”). The Commission has neither
approved nor disapproved its content. This Investor Alert, like all staff
statements, has no legal force or effect: it does not alter or amend applicable
law, and it creates no new or additional obligations for any person.



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