Social Media and Investment Fraud: Common Schemes

by Wall Street Fraud on January 19, 2012

Investment fraud lawsuitAs we mentioned yesterday, the Securities and Exchange Commission recently issued an Investor Alert highlighting the risks associated with investment opportunities touted on social media.

While fraudsters can use sites such as Facebook and Twitter to perpetrate virtually any type of investment fraud, there are a few that are more common than others.

As outlined by the SEC, here are a few examples of the types of schemes you should be on the lookout for when using social media:

  • “Pump-and-Dumps.” These schemes hype a company’s stock through false and misleading statements to the marketplace. These false claims could be made on social media such as Facebook and Twitter, as well as on bulletin boards and chat rooms. Pump-and-dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down.
  • Market Manipulation Scams. Stock promoters will also claim to have “inside” information about an impending development or to use an “infallible” combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is “pumped” up by the buying frenzy they create. Once these fraudsters “dump” their shares and stop hyping the stock, the price typically falls, and investors lose their money.
  • Fraud Using “Research Opinions,” Online Investment Newsletters, and Spam Blasts. Touting isn’t illegal as long as publications disclose who paid them, how much they’re getting paid, and the form of the payment, usually cash or stock. However, fraudsters often misrepresent this information or even claim to offer independent, unbiased recommendations in newsletters when they stand to profit from convincing others to buy or sell certain stocks – often, but not always, penny stocks. The fact that these so-called “newsletters” may be advertised on legitimate websites, including on the online financial pages of news organizations, does not mean that they are not fraudulent.
  • High Yield Investment Programs. The Internet is awash in so-called “high-yield investment programs” or “HYIPs.” These are unregistered investments typically run by unlicensed individuals – and they are often frauds. The hallmark of an HYIP scam is the promise of incredible returns at little or no risk to the investor. A HYIP website might promise annual (or even monthly, weekly, or daily!) returns of 30 or 40 percent – or more. Some of these scams may use the term “prime bank” program. If you are approached online to invest in one of these, you should exercise extreme caution - they are likely frauds.
  • Internet-Based Offerings. Offering frauds come in many different forms. Generally speaking, an offering fraud involves a security of some sort that is offered to the public, where the terms of the offer are materially misrepresented. The offerings, which can be made online, may make misrepresentations about the likelihood of a return. Other online offerings may not be fraudulent per se, but may nonetheless fail to comply with the applicable registration provisions of the federal securities laws. Always determine if a securities offering is registered with the SEC or a state, or is otherwise exempt from registration, before investing.

If you have been the victim of a social media investment fraud, we may be able to help you recover your losses. Contact us today at 215-839-3953 for a free consultation.

At Wall Street Fraud, we are dedicated to offering assistance to those who have been hurt by improper corporate or investment practices.

If you have been the victim of stock brokerage fraud, securities fraud, mutual fund fraud, stockbroker fraud, annuities fraud, or any other type of investment fraud, please contact us today for a free case evaluation. Our talented and aggressive legal and professional staff is eager to help you recover your losses.

 

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