Social Media Fraud: Should You Trust Stock Advice on Facebook?
Is Facebook Fraud the New Fraud Frontier?
If you’ve been on Facebook or Twitter today, there’s a chance you’ve been a victim of fraud.
Let me explain: in this day and age, we’ve come to expect and protect ourselves from the familiar forms of fraud: credit card fraud, cheque fraud, identity fraud, and so on. But recent news has suggested that we need to be wary of fraud even when we’re just scrolling down our Facebook feeds.
According to the Securities and Exchange Commission (SEC), fraudsters are taking to social media sites to spread false or misleading information about stocks, likely under an anonymous identity or even by impersonating credible sources with legitimate market information. This type of fraud may become increasingly prevalent, as they are able to reach “large numbers of people with minimum effort and at a relatively low cost.”
How Are These Fraudsters Doing It?
One particular method these fraudsters may use is engaging in market manipulation – spreading false or misleading information about a certain company in order to tank their stock’s share price. The original perpetrators will then swoop in to take advantage of the new, artificially low price. However, fraudsters can also take the other route: spreading positive rumours.
In a “pump-and-dump” scheme, fraudsters will “pump” up the price of the stocks by spreading positive rumours about the company, thus enticing swarms of investors to buy their stock. The fraudsters will then “dump” their own shares during this temporary frenzy, after which the stock price will usually drop and cause the remaining investors to lose money.
In one case, a Canadian couple used their website, PennyStockChaser, along with their Facebook and Twitter accounts to drive up the stock of certain companies. As compensation, they received millions of shares which they would then sell once their own website predicted that the stock price would massively increase. This particular practice is known as “scalping.”
What Are Some Red Flags We Should Look out For?
When looking for stock tips online, be aware of these four red flags that could mean you’re dealing with a fraudster:
- Limited History of Posts – Fraudsters may often set up new accounts to avoid being caught or having their identity revealed. Be wary of social media accounts that don’t have many prior posts
- Pressure to Buy or Sell “Right Now” – Messages that tell you to buy or sell a stock “right now” are incredibly sketchy. You should always take your time to research the stocks you buy before making a decision.
- Unsolicited Investment Information and Offers – Fraudsters might prey on victims on social media sites, chat rooms, forums, etc. Be skeptical of anyone who might contact you on a social media site giving you investment advice, especially if you don’t know who they are.
- Unlicensed Sellers – Investment professionals and firms that offer and sell investment need to be licensed or registered, in accordance with federal and state securities laws. You can check for license or registration status by looking it up on the SEC’s Investment Adviser Public Disclosure (IAPD) website.
Your Workplace Deserves Protection From Fraud Too
While it may seem more than obvious that you should be protecting yourself from fraudsters, the same goes for your own workplace. You may already be taking steps to protect yourself and your employees from fraud, but backing it up with an independent ethics reporting system makes you that much safer.
A third party ethics reporting system is the first place your employees can go to report on any type of behaviour that seems unethical. A powerful tool that enables the reporting of any type of wrongdoing in a confidential and anonymous fashion ensures your employees can feel secure that whatever they feel they need to report on, they can do so safely.
Whistleblower Security is committed to promoting a culture of integrity, collaboration and transparency for all our employees and clients. With a 24/7/365 whistleblower hotline and whistleblower program, employees can be assured that all of their ethical concerns will be heard and addressed.