Friday’s Fraud: Don’t Believe Everything You See on Social Media

By Christopher Pugh, Fall 2014 Student Intern

fraudSince 2007, Facebook has fended off regular rumors that the social media giant will start charging a fee for use of their website. The rumor is always complete with quotes from Mark Zuckerberg and a price schedule for the new fees. And even though millions of people fall for the hoax each time, it is never true. Of course, social media rumors also infect the financial markets and investors should be aware that not everything they see on social media is reliable.

The SEC’s Office of Investor Education and Advocacy (OIEA) issued an alert to warn investors that some fraudsters are using social media to spread erroneous information about stocks that will affect the stock’s price per share. The misinformation can be positive or negative statements about the stock. Positive statements are made to drive the price up, so the fraudsters can then sell the stock at a profit. Conversely, negative statements are made to drive the price down, so the fraudsters can buy the stock at a low price.  Social media provides the fraudsters with a low cost platform to disseminate the misinformation far and wide maximizing the effect on the stock price.

Investors should be aware that fraudsters may use social media to impersonate a legitimate source of investor information. For example, fraudsters can establish an account name or profile designed to look like a legitimate company or broker. They may use a company’s logo, links to the company’s website, or reference the name of an actual person with the company. Of course, with cut and paste options, these profiles can be made to look very legitimate.

Investors should be skeptical of all investment information they receive on social media and take steps to verify that information before relying on it. Watch for subtle typos in the URLs and the company’s name and logos.  Investors can also look up the company’s SEC filings here to verify names and spellings, then go to the website provided by the company on the SEC filing. Often, if a company put information out through social media channels, it can also be found on that company’s website too.  The moral of the story for investors is to verify information before relying on that information—if the information is true, it can be found in several other places besides social media.