By: Dowdy White, Fall 2018 IAC Student Intern
It’s a good philosophy not believe everything that you read, which is ironic considering the fact that you’re reading this. However, it’s probably easier to believe something if you know that it comes directly from the SEC. Throughout this “Elon Musk tweet” fiasco we’ve learned just how powerful words are and how important it is that we second-guess everything we read—especially on social media. But how do we protect ourselves as investors?
The SEC has been talking about how to be safe about investing when social media comes into play long before its case against Elon Musk. In 2014, the SEC released an investor alert informing investors how to avoid fraud when it comes to social media and investing. Well, the SEC simply states that the key to avoiding investment fraud on the Internet is to “be an educated investor.” That tried and true advice is important, and you should use it whenever you think you might want to invest. To become an educated investor, the SEC recommends that you follow these five steps:
- Be Wary of Unsolicited Offers to Invest
- Investment fraudsters often look for their victims on social media sites, chat rooms, and online private message boards. The SEC says that if you see a new post on your wall, a tweet mentioning you, a direct message, an email, or any other unsolicited communication regarding a so-called investment opportunity, you should exercise extreme caution. Your best option is to pass up the alleged “opportunity” and report it to the SEC’s Complaint Center.
- Look Out for Common “Red Flags”
- Any investment that sounds too good to be true probably is just that. Any investment opportunity that claims that you will receive way more money than you invest could be highly risky or an outright fraud.
- Any investment opportunity that promises “guaranteed returns” is probably fraudulent. Every investment entails some level of risk, which is reflected in the rate of return that one can expect to receive.
- Don’t ever feel pressured to rush into an investment before you have a chance to think about it and perform research. The SEC says to be “especially skeptical” of investments that are pitched as “once-in-a-lifetime” opportunities.
- Look Out for “Affinity Fraud”
- Never make an investment based solely on the recommendation of a member of an organization or group to which you belong, especially if the pitch is made online. Even if you know the person making the investment offer, be sure to check out everything—no matter how trustworthy the person seems who brings the investment opportunity to your attention.
- Be Thoughtful About Privacy and Security Settings
- The SEC says that investors who use social media websites as a tool for investing should be mindful of the various features on these websites in order to protect their privacy and help avoid fraud.
- Unless you guard your personal information, it may be available not only for your friends, but for anyone with access to the Internet, including fraudsters.
- Ask Questions and Check Out Everything
- Always be skeptical and research everything about an offer before making an investment decision. This means that you should investigate the investment thoroughly and check the truth of every statement you are told about the investment.
- NEVER take a promoter’s word at face value. You can check out many investments using the SEC’s EDGAR filing system.
In the digital age, it is important that investors be as skeptical and as careful as ever. What seems like a win-win investment could potentially rob an investor of all of his capital. In order to keep this from happening to you, do your own research and check the truth of every statement that you are told.
If you would like to learn more about Internet and social media fraud, please visit: