Social Media and Investing Fraud: What You Need to Know

by Jeff Reeves | September 17, 2012 1:24 pm

The internet age has brought about some great access to information and the liberation of data that was once obscure.

If you’re a baseball nut, you can get any stat under the sun in seconds. If you’re a film geek, you can play Six Degrees of Kevin Bacon to your heart’s content.

And if you’re an investor, stock tips and company data are just a click away.

That access is great — and as a digital media outlet that traffics in financial news, I personally have a lot to be thankful for on that front. Unfortunately, the information age has also provided unscrupulous people with the ability to move markets or take advantage of unwary traders.

You may be aware of some of the conventional scams — pump-and-dump schemes based on misinformation, fake stock tips delivered directly to your email inbox and of course the glorious “Nigerian prince” scams that try to tap into your personal information with the false promise of wealth in return.

But one pitfall many may not be aware of is the risk of social media scams.

The SEC’s Office of Investor Education recently put out some bulletins on this issue and there is some interesting reading there. The first is a document about social media and investing tips (get the full rundown here on SEC.gov[1]). Some common sense advice from regulators includes:

• Look out for Red Flags — These include something that sounds too good to be true, something that is “guaranteed” with no risk or pressure to buy right now.
• Be Wary of Unsolicited Offers — If you don’t know who sent the offer or why, chances are it’s not purely informational or altruistic.
• Look out for “Affinity Fraud” — This is a common tactic online, where crooks join an online group where you are a member — either ethnic, religious or leisure groups — and try to cloak their scheme in shared interest to make it more palatable.
• Be Thoughtful About Privacy and Security Settings: This is crucial. As the SEC puts it, “Understand that unless you guard personal information, it may be available not only to your friends, but for anyone with access to the Internet — including fraudsters.”
• Ask Questions and Check Out the Answers. As any good investor knows, it pays to be skeptical and do your own legwork.

There are also examples of common fraud cases on the SEC site, so check it out here[2].

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[3] Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a long position in Apple.

Source URL: https://investorplace.com/2012/09/social-media-and-investing-fraud-what-you-need-to-know/

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