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 Texas, as in other states, investors are advised to exercise caution when using the internet and social media for investment decisions. The Texas State Securities Board (TSSB) regulates securities transactions within the state and enforces laws against fraudulent investment practices. Investors should be aware that while the internet and social media can provide valuable information, they are also platforms where fraudsters can operate. The TSSB warns against unsolicited investment offers, which may be part of fraudulent schemes. Investors are encouraged to research investment opportunities thoroughly and verify the registration of any securities offering with the SEC or the state securities regulators. Online investment newsletters must disclose payment information if they promote stocks, and investors should be skeptical of claims made in online bulletin boards or chat rooms, as these can be manipulated by individuals with conflicts of interest. Spam emails should be treated with suspicion, especially if they promote investment schemes or provide misleading information about companies. To protect against investment fraud, Texas investors should become educated, verify information independently, and report suspicious activity to the SEC or the TSSB.
