Social Media and Investing – Avoiding Fraud

The SEC’s Office of Investor Education and Advocacy has put together a valuable online report to help protect investors from fraudulent investment schemes that make use of social media and other Internet based communications.

Today, investors, as well as businesses, routinely turn to the Web as a primary means of investment related communication, with a special focus on email and social media sites such as Facebook, YouTube, Twitter, and LinkedIn. However, although such technology can be a valuable investor tool, it can also be used for purposes of investment fraud. The ease with which impressive presentations and websites can be created, and millions of potential investors reached, makes it imperative that investors take extra care to verify everything they see or hear on the Internet.

The SEC wants investors to know that the key to avoiding investment fraud on the Internet is to be an educated investor. Here are a few simple steps to avoid getting caught in an investment scheme:

• Be Wary Of Unsolicited Offers To Invest – Social media sites, chat rooms, and bulletin boards can provide an easy way for investment fraud perpetrators to reach victims. Unsolicited investment related communications, such as a new post on your wall, a tweet mentioning you, a direct message, or an e-mail, could represent a fraudulent investment scheme. Unsolicited emails promoting a stock, even if it looks like it came from a personal friend, can in fact be a sign of an investment scheme.

• Be Wary Of Promotions That Sound Too Good To Be True – Any investment promotion that promises unusually high returns should be considered a red flag. Look out for phrases such as “incredible gains,” “breakout stock pick,” “almost no risk,” or any suggestion of guaranteed returns.

• Be Wary Of Affinity Fraud – Avoid making an investment decision based solely upon a recommendation of a member of an organization or online group to which you belong. Fraudsters know that people are more likely to trust fellow members, and can use this as a way to mislead. Even if you feel you know the person, always check out everything independently.

• Be Wary Of Time Pressures – Be careful of promotions that push for a quick decision, precluding any chance of thorough research.

• Be Wary Of Special Information – Watch out for promotions that are based upon any kind of “inside” or “confidential” information.

In addition to being on guard for the above mentioned red flags, learn to be careful when it comes to privacy and security settings. Unprotected information can be used by fraudsters in a variety of ways.

Most importantly, do your own research. Never simply accept the opinions of someone else, whether from an email, a social media site, a newsletter, a press release, or even a friend.

For additional information, visit www.sec.gov/investor/alerts/socialmediaandfraud.pdf

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