Securities Commissioner Warns of Dangers in Social Media, Online Marketing

Sep 7

The rise in popularity of Facebook, YouTube, Twitter, LinkedIn, and myriad other websites and online networks have given con artists a new way to peddle fraudulent investment scams, Securities Commissioner Benette L. Zivley warns investors.

"Today, crooks are increasingly logging on to find investors,"Zivley said. "Online networking and media sites make it easier to establish trust and credibility with investors, and then launch an investment scheme."

Online social networking sites enable scammers to gain access to potential victims through their online profiles, which may contain sensitive personal information such as their dates or places of birth, phone numbers, home addresses, religious and political views, employment histories, and even personal photographs.

The State Securities Board cautions investors to make sure they know who they are doing business with when considering investments pitched through "friends"on networking sites.

"The anonymity of the Internet allows fraudsters to hide in plain sight,"Zivley said. "The person behind an online profile may be deliberately mimicking your likes and interests to lure you into a scam."

Social networking and media have raised the stakes for investors, making it easier for con artists to launch "affinity fraud"schemes. These schemes have existed for years in the offline world; they target victims through traditional offline social networks, such as community service groups, professional associations or faith-based organizations. Scammers infiltrate groups of individuals connected through common interests, hobbies, lifestyles, professions or faith to establish strong bonds through face-to-face contact and sharing of personal interests before launching their schemes.

Equally troubling is the use of YouTube and other online media channels to market investment schemes. "Investors should not be influenced by online video solicitations, no matter how sophisticated the video or how impressive the sales pitch,"Zivley said.

Promoters use the Internet for more than solicitation of investors, however. "The State Securities Board has taken action recently against firms that recruited large sales forces through the Internet,"Zivley said. "This enables firms to quickly sell millions of dollars in illegal or inappropriate investments to the public."

"Investors should rigorously scrutinize investment opportunities regardless of the medium,"Zivley said. "Anyone can contact the State Securities Board for free background checks on investment professionals and firms and to make sure the investment being offered, and the person selling it, is registered."

For more information on the State Securities Board:

Here are answers to some commonly asked questions about social networks and investing:

How do con artists exploit social networks? In traditional social networks, con artists use meetings to establish strong bonds through face to face contact and the sharing of personal interests. Online, a con artist can establish this trust and credibility more quickly. The scammer has immediate access to potential victims through their online profiles, which may contain sensitive personal information such as their dates or places of birth, phone numbers, home addresses, religious and political views, and employment histories.

The con artist takes advantage of how easily people share background and personal information online and uses it to make a skillful and highly targeted pitch. The scam can spread rapidly through a social network as the con artist gains access to the friends and colleagues of the initial target.

What are the red flags of an online investment scam?

Most are similar to the red flags of traditional scams: Promises of high return with no risk; investment operations housed offshore; investments in currency and foreign exchange trading operations; lack of a prospectus or written documentation detailing the risks of an investment.

But there are some additional dangers in the online world. First, anyone can put up a good-looking website. Scam sites may look professional, but they often offer little or no information about the company's management, location or details about the investment. Second, online scam promoters often fail to provide a written prospectus or other form of written information detailing the risks of the investment and procedures to get your money out.

How can I protect myself from fraud in social networking?

Protect your personal information. Many sites allow you to choose how much personal information you want to make publicly available. Adjust your privacy and security settings accordingly, and think twice before posting personal information online.

Beware the use of names or testimonials from other group members. Scam artists frequently pay out high returns to early investors using money from later arrivals - the Ponzi scheme. Fraud aimed at groups of people who share similar interests is called affinity fraud.

Don't feel pressured by a salesperson to "act now."Take time to check out the investment yourself. If you rush into an investment decision today you may regret it for a lifetime.