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Social Media and the Risk of Investment Fraud

By December 5, 2018Investment Fraud

Social Media and the Risk of Investment Fraud

Social media can accomplish amazing feats like reuniting long lost family members or raising awareness on injustices but it can also leave people vulnerable to investment fraud and scamming. While social media platforms attempt to protect Internet users with features like verification and removing spam accounts, those engaging in criminal activities consistently find new ways to reach their victims.

Cybercriminals take advantage of the scope of social networks such as Facebook, LinkedIn, and Twitter, which boast hundreds of millions of active users. They also take advantage of the fact that social media platforms create a false sense of trust—especially when criminal accounts pose as legitimate representatives of brands or as “friends of a friend”. Lastly, criminals take advantage of relative anonymity by hiding behind fake aliases or by posing as a member of an investment firm or company.

Many times, fraudulent activity looks legitimate upon first glance. For example, a network of scammers may pose—rather convincingly—as service representatives of consumer brands and banking institutions (colloquially known as phishing). They may also pose as knowledgeable investors with access to unique and exciting opportunities.

Understanding the types of campaigns used to scam victims along with knowing how to spot fake accounts from real ones is crucial to protecting one’s identity and investments online.

How Scams and Fraud Can Affect Internet Users

Investment fraud online has far-reaching effects. Once cybercriminals have access to private information, a person could become a victim of identity theft, fraudulent charges on financial accounts, and swindled with counterfeit products or investments. Financial losses and identity theft can devastate social media victims.

Fraudulent activity online could absorb an investor’s hard-earned capital, leaving them unable to recoup their losses. Prosecuting Internet-based fraud can be very difficult—especially if cybercriminals cover their tracks by spoofing their IP addresses and locations. Criminals who operate in countries other than the United States might be cumbersome to prosecute, since laws vary wildly from country to country.

Common Investment Scams on Social Media

Cybercriminals utilize similar tactics to those who use classic affinity fraud schemes. Affinity fraud is a blanket term used to describe fraudulent schemes that target specific groups of people such as ethnic or religious minorities and the elderly. 

Similar to affinity fraud, scammers targeting investors might isolate people based on demographic information readily available on individuals’ Facebook and LinkedIn profiles.

Other common types of fraud include advance fee fraud, Ponzi schemes, and “Pump and Dump” scams.

Advance Fee Fraud

Another way that cybercriminals target investors is through “advance fee fraud”. This type of fraud means that a scammer solicits funds in the form of a tax or commission to invest a person’s money. In reality, there is no investment in this circumstance and the victims never see returns on their ventures.

Ponzi Schemes

Ponzi schemes are popular online, too. These types of schemes originated long before the Internet but scammers have perfected the art of reaching victims through social networks. Ponzi schemes revolve around taking money from future victims to pay off previous investors. The monies paid to initial investors is used to make frauds appear more legitimate and less risky than they actually are.

Pump and Dump Schemes

Pump and dump schemes take advantage of the viral nature of social network content to push an investment’s value upward. They typically utilize content loaded with false or misleading claims to inflate an investment’s value. Then, as the price hits an all-time high, scammers will dump the stock and leave investors in their dust.

Red Flags Concerning Investment Fraud

Following are classic investment fraud red flags that you might see online:

  • Promises of extremely high returns
  • Claims of insider or proprietary information
  • Asking for confidential information like credit card or social security numbers during initial communication
  • Utilizing suspiciously positive claims
  • Discrepancies in spelling and grammar
  • High-pressure sales tactics that demand money quickly
  • Evading questions from potential investors

How to Protect Yourself from Online Investment Fraud

Protecting yourself from investment fraud begins with awareness. When it comes to social media, take claims with a grain of salt. If something sounds too good to be true or is touted as the “opportunity of a lifetime”, it should raise your suspicions.

If you find yourself wondering whether an investment is legitimate, investigate deeper. Asking for a person’s qualifications or credentials before investing is beneficial to rooting out fraud. It is also helpful to compare industry-wide returns on particular products and services with the claims made by an online investment opportunity.

Consulting with an investment fraud attorney can be helpful as well. An attorney with experience handing internet scams and investment fraud might be able to help clients build their cases and seek prosecution.

Contact our practice at 504-586-5298 to consult with a member of Fishman Haygood investment fraud team.

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