By Francis Laryea, Spring 2016 Student Intern
Radio, one of the oldest form of mass communication, is still being used to defraud investors. Many people look to the radio for entertainment during their morning commute, but many others listen to radio programs that discuss and provide investment information. These programs address general topics relating to investments and some provide recommendations as to what may be a good investment. The SEC announced that some investment-related radio programs are being used to defraud investors. Radio programs could be connected to various types of investment fraud, a few examples include:
(i) Touting – Promoting an investment without disclosing that the radio program receives some type of compensation for sponsoring the investment.
(ii) Pump and dump schemes – A pump and dump scheme builds interest in an investment by making misleading or fraudulent statements about the investment. As investor interest increases the price of the investment rises and the perpetrators of the scam can sell the investment at an inflated price.
(iii) Ponzi scheme – an investment fraud that pays out investment returns to existing investors from funds contributed by new investors.
Before investing, potential investors should thoroughly investigate the investment and the persons associated with the investment. Some entities that sponsor or broadcast radio programs are registered with the SEC as investment advisers and can be researched on the SEC website here.
For a comprehensive list of frauds and how to detect signs of potential investment scams visit the SEC Investor Alerts and Bulletins here.