These days, many Americans visit social media sites (such as Instagram, Facebook, Twitter, TikTok, and LinkedIn) at least once a day for news and information, and many social media users also naturally turn to these sites to check out investment news, seek investment advice, or learn more about investments and their promoters. Although social media sites can be a great tool for learning more about investing and connecting with friends, investors should be aware that many fraudsters are also turning to social media to run their investment scams.
Signs of Social Media Investment Fraud
Protecting yourself from social media investment fraud is much like protecting yourself from any other type of fraud. The best way to avoid social media investment fraud is to learn to spot the signs of an online scam and always do your own research to verify what you have been told.
Here are some main signs of an investment-related social media scam:
- No Risk / High Returns. There are risks with ANY investment and if expected returns are high, you should expect a higher risk. If it sounds too good to be true, it probably is.
- Affinity Fraud. Affinity fraud is a popular tactic and social media lends itself well to it. Because social media allows people of similar backgrounds and interests to communicate freely, fraudsters can use that sense of similarity to sell you on a fishy pitch.
- Unsolicited. Any investment opportunity that comes from someone you don't know should be taken with a serious grain of salt. Before you jump on board, be sure you have done the research to know exactly who and what you are dealing with.
- Pressure to Buy. Some fraudsters will put the pressure on investors by offering a "once in a lifetime" opportunity or "limited-time offers" to try to get you to bite before you've had a chance to look into where your money is going.
Two Main Types of Social Media Investment Fraud
- Building trust through social media. Social media sites are, by their nature, social and casual places. Fraudsters may take advantage of this and attempt to build your trust and friendship. Once they’ve buttered you up, they may try to pressure you into Ponzi schemes and other scams. Additionally, social media sites make it easier to pull off “affinity fraud,” in which a fraudster targets a specific social group with a scam.
- Building interest through social media. It’s easy to make a fake website look professional, and it’s easy to falsely hype investments with flashy ads and personal messages. Some fraudsters might use this to their advantage, running classic “pump and dump” scams or taking in investors’ cash for completely fictitious investment opportunities.
Social Media Scams Are On The Rise: Protect Yourself
As social media companies have continued to grow exponentially, investment schemes have popped up. According to FINRA's warning to investors, there are reports of "potentially fraudulent schemes that have solicited potential victims by purporting to sell shares of Facebook." FINRA has therefore advised investors to be wary of pre-IPO scams involving social media companies.
Below are some of the ways to avoid losing money in a social media investment scam:
- Consider how the offer was made. Investment scams frequently come in the form of unsolicited offers. Don't fall for the promises of high returns and ask yourself why a complete stranger would offer you a great investment opportunity.
- Look into the salesperson's background. Is this person licensed? Does he or she have a criminal history? Have any complaints been made? Contact your state securities regulator and use FINRA's BrokerCheck to get the information you need.
- Do your own investigation. A lot of information is available at your fingertips. Get on the Internet and start searching for details about the offer that was made to you. You should also search for information about the salesperson who solicited you and the company.
- Talk with a professional. If you are seriously considering investing in a pre-IPO offer, you should speak with a lawyer or other professional first.
If you have been taken in by a social media investment scam, you may be able to recover your losses. Speak with an expert securities fraud attorney from our legal team at Meyer Wilson today in a completely free, no-obligation legal consultation. Our FINRA lawyers represent harmed investors in stockbroker mediation, arbitration, and litigation nationwide.