Published on Aug 31st, 2022 |

Brief Introduction

On Monday, August 29th, the SEC’s Office of Investor Education and Advocacy sent out an Investor Alert relating to Social Media and Investment Fraud.

There was coverage on recommendations to prevent investors from being scammed and how the scammers may exploit certain vulnerabilities.

8 SEC Recommendations to Prevent Fraud

  1. Investors should not make any investment decisions relying solely on information from social media platforms or apps.
  2. Certain scammers or fraudsters pay celebrities, millionaires, and influencers regarding making an investment decision on social media which investors should not be swayed by these testimonials or celebrity endorsements.
  3. Verifying the identity of the underlying source for when investment information is received through social media is crucial (e.g. look for slight variations in the email address, screen name, account name, and when contacting a broker/investment adviser, use the phone number listed in the Form CRS).
  4. Readers should be more skeptical about information that is not verified. While having a verified account (e.g. Instragram, Twitter) could ensure authenticity, that still does not mean the source is genuine.
  5. If there is ever a social media message sent regarding recommending an investment, make sure to contact that individual outside of social media to ensure that message was actually sent by that person.
  6. Be aware of crypto scams that promise high investment returns with rapid increase in value and minimal risk as this is a sign of fraud.
  7. For romance scams, it is important to not share any information relating to your personal finances or identity (e.g. SSN, DOB, Passport, etc) and do not invest money based on advice from someone that has only been met online or through an app.
  8. Be cautious of information posted online from social media accounts that have a minimum history of postings, as they may be trying to manipulate the share price of a company’s stock by spreading rumors on social media. Microcap and Penny Stocks are examples of what is more susceptible to market manipulation.

Vigilant’s Final Conclusion

With the SEC’s continued mission on investor protection, this Investor Alert clearly laid out common fraudulent activities that they have seen, and provided clear detail behind each point with examples.

With the increase of social media use and promotion, it is important to be aware and act responsibly when it comes to providing investment advice that is relayed to the retail investor(s). As a result, this should serve as a warning sign to make sure policies, procedures, and ADVs are all up to date to provide an ease of comfort for retail investor(s) towards any investment related decisions they plan to make when the information they find is on social media or through promotion.

If you are in need of a full scope review of your Policies and Procedures, Compliance Manual, ADVs, or a Mock Exam, contact us today for assistance.

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