Investor Alert: Social Media ‘Investment Group’ Imposter Scams on the Rise

FINRA has seen a recent significant spike in investor complaints resulting from recommendations made by fraudulent “investment groups” promoted through social media channels. Complaints received by FINRA and posted on social media describe bad actors, posing as registered investment advisers, who initially advertise “stock investment groups” on Instagram and other social media channels and then turn to encrypted group chats on WhatsApp to communicate with interested investors and pitch investments.

Since November, FINRA has received nearly a dozen investor complaints regarding this threat, alleging millions of dollars in total losses. And if history is a guide, it’s likely that this is just the tip of the iceberg.

What to Know

As with other broker imposter scams, the bad actors might falsely portray themselves as registered professionals, in some recent cases fraudulently claiming affiliation with well-known public figures and others in the investment industry—people who are not involved in the scheme. The scammers also create fake personas by taking the name and other publicly available details about a registered investment professional with a spotless disciplinary history. They then misuse this information to establish legitimacy, unbeknownst to the actual investment professional being impersonated.

Scammers start out by promoting investment in a well-known, actively traded stock and then, through ongoing conversations in the private chat platform, move their targets to invest in a low-priced/low-volume U.S.- or Hong Kong-listed stock. They instruct investors to open an account at a specific broker-dealer, then guide them on which stocks and how much to purchase and at what times and prices, essentially leading the investors to unwittingly manipulate the price of the securities upwards. At some point, the investors become unable to sell, and the price of the securities inevitably crashes.

The scammers try to convince investors to transfer in as much money as possible from other bank and brokerage accounts. When investors report losses, the scammers promise to “make the money back” if the investors can transfer more funds into their accounts. One victim reported that the scammers are requesting that investors borrow money from friends and family in order to make back the money that was lost.

How to Protect Yourself

To avoid becoming a victim of these or other types of ramp-and-dump scams, be particularly wary of unsolicited messages or social media promotions of investment opportunities. Always research investment professionals before making an investment. Use FINRA BrokerCheck to see if the promoter is a registered investment professional, and verify that the names of the person and the firm, along with their addresses or the locations where they do business, align with your own research. Never invest without first carefully and independently evaluating the product. And be aware that many brokerage firms in the U.S. specifically prohibit their registered investment professionals from using channels like WhatsApp to conduct business.

Learn more about how to protect yourself from similar financial grooming, known worldwide as pig butchering scams.

If you think you’ve been a target or victim of a stock manipulation scheme, submit a regulatory tip to FINRA.

FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.

Photo Credit: @istockphoto.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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