Updated Investor Alert: Common Investment Scams Using Social Media

By Patricia Uceda, Fall 2014 Graduate Research Assistant

networkThe SEC has identified the following schemes as common investment scams that fraudsters use online and that investors should be on the lookout for:

  • “Pump-and-Dump” Manipulation Schemes: As we previously discussed, pump-and-dump schemes involve hyping up a company’s stock (usually small penny stock companies) through false and misleading statements. Online these claims are easily disseminated on Facebook, Twitter, and online forums or chat rooms where users claim to have inside information on a company. Once the stock’s price is artificially inflated by investors, the fraudsters will cash out, usually causing the stock price to fall back down.
  • Online Investment Newsletters: While there are some legitimate online newsletters that contain useful information about investment, the anonymous and fee internet environment encourages fraudsters to use online newsletters as tools for fraud. Companies can pay online newsletters to recommend their stock. This practice is actually legal, as long as the newsletters disclose who paid them and how much they’re getting paid. Unfortunately, many claim to offer independent, unbiased recommendations despite the fact that they are making money. Before you rely on an online newsletter touting a stock, be sure you carefully consider the source.
  • High-Yield Investment Programs: High-yield investment programs, or “HYIPs”, are unregistered investments usually run by unlicensed individuals that promise incredible returns at very little risk to the investor. They are commonly implemented through HYIP websites that are promoted aggressively on social media. Investors should exercise extreme caution if they are solicited to invest in one of these, as they are very likely fraudulent.