Facebook is Known for Spreading Fake News, but How About Financial Fraud?

By Jillian Sarmo, Investor Education and Public Affairs Coordinator ~

More and more older Americans are using social media every day, including to help guide investment decisions. Whether it is to research particular stocks, to find background information on financial professionals, to gather up-to-date news, or to discuss the markets with others, social media – web-based platforms that allow interactive communication, such as Facebook, YouTube, Twitter, LinkedIn, bulletin boards, and chat rooms – has become an important investing tool. While social media can provide many benefits, it also presents opportunities for fraudsters targeting older Americans. As a result, we all need to proceed with caution when using social media as part of the investment process.

Jillian Sarmo

Jillian Sarmo

When it comes to avoiding scams, the best defense is to be an educated investor. The U.S. Securities and Exchange Commission’s Office of Investor Education has provided the following five tips to help avoid investment fraud online:

1. Watch out for the red flags
Wherever you come across a recommendation for an investment on the Internet, the following “red flags” should cause you to use caution in making an investment decision:
• It sounds too good to be true. Be extremely wary of claims on the Internet that an investment will make “INCREDIBLE GAINS” or is a “BREAKOUT STOCK PICK.” Claims like these are hallmarks of extreme risk or outright fraud.
• Offers to invest outside the United States. You should carefully examine any unsolicited offer to invest outside of the United States. Many fraudsters set up operations outside the United States to make it more difficult for regulators to stop their fraudulent activity and recover their victims’ money.
• Pressure to buy RIGHT NOW. Don’t be pressured or rushed into buying an investment before you have a chance to think about it.

2. Be wary of unsolicited offers
Investment fraud criminals look for victims, including seniors, on the Internet. If you see a new post on your wall, a tweet mentioning you, a direct message, an e-mail, or any other unsolicited – meaning you didn’t ask for it and don’t know the sender – communication regarding a so-called investment opportunity, you should exercise extreme caution. An unsolicited sales pitch may be part of a fraudulent investment scheme

3. Be on the lookout for “affinity fraud”
An investment pitch made through an online group of which you are a member, or on a chat room or bulletin board catering to an interest you have, may be an affinity fraud. Affinity fraud refers to investment scams that prey upon members of identifiable groups, often seniors, religious or ethnic communities, professional groups, or combinations of those groups. Even if you know the person making the investment offer, be sure to check out everything.’

4. Be thoughtful about privacy and security settings
Seniors who use social media as a tool for investing should be mindful of the various features on these websites that can help protect privacy. Understand that unless you guard personal information, it may be available not only to your friends, but for anyone with access to the Internet – including fraudsters.

5. Ask questions and do your own research
Be skeptical. Never judge a person’s integrity, or the merits of an investment, without doing thorough research on both the person selling the investment and the investment itself. Investigate the investment thoroughly and check the truth of every statement you are told about the investment. You can check out many investments using the SEC’s EDGAR filing system, find professional licenses and disciplinary history through the SEC’s www.investor.gov website, and you can always call the Colorado Division of Securities for assistance.

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