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4 tips for avoiding investment fraud on social media

On Behalf of | Nov 9, 2022 | Securities Fraud |

As we consider various investments, we often wish we had an edge over other investors. We would never engage in insider trading, but it would surely be good to get in on the first floor.

Savvy investors rely on a great deal of information when choosing stocks. Naturally, you will want to read the company’s stock prospectus and other SEC filings. You will conduct research into the company’s market and identify any trends that could impact stock performance. You will perform your own analysis of whether the stock is a good investment.

You may choose instead to rely on an expert to perform that due diligence for you. Your investment advisor or broker can fill that role. But how do you get that edge?

Seeking an edge is what leads many people to be on the lookout for information. Often enough, that means combing through social media. That could put you at risk for a scam.

Four tips to minimize the risk

Avoid romance scams. These involve an online friendship that seems completely legitimate. Con artists can be very convincing, and they may not even use romance to get you to trust them. The basic point is that they can get you to trust them. There are even some fraudsters claiming to be SEC staff.

Make a hard rule for yourself that you will not invest money or share personal financial information with anyone you haven’t met in person.

Verify the underlying source of anything you see on social media. Scammers can create fake accounts that look very real. Beware of “phishing,” which is an attempt to garner your private financial information by seeming like a trusted source. This can be hard to spot, but one way to do it is to call the company or agency yourself.

Only share your financial information when you were the one who initiated the contact – not when they contacted you.

Even the best social media content could be misleading or incomplete. Companies may post investment information on social media in an attempt to boost their share prices. As long as the information is publicly available and accurate, this is generally legal. However, social media posts may convey a false impression of legitimacy or give the sense that lots of people are cashing in.

Verify whatever information you get via social media from another source and look for context.

Beware of paid testimonials and celebrity endorsements. Although testimonials and endorsements may be legitimate and helpful in some cases, paid ones may be misleading. Moreover, fraudsters have been known to pay people to claim they made it rich quick.

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