You should never make investment decisions based on social media information. It may be tempting to think you have unusual insight and that you are putting pieces together in a way that others are not. Unfortunately, it’s more likely that you’re being scammed.
As we’ve discussed before on this blog, it’s important to understand and minimize the risk of social media-based investment fraud. Make sure you know that social media content about potential investments is bound to be misleading or incomplete. Any information you receive through social media needs to be verified. You need to beware that the information may be bait for a scam.
For example, the Securities and Exchange Commission just charged eight social media influencers with pumping stocks. According to the agency, seven of them built large followings on Twitter and Discord by claiming to be successful investors. The eighth aided and abetted them using his podcast to promote them and give them a forum. Together, the influencers pumped specific stocks to their followers and then, once the price had gone up, dumped their stock at a profit.
The SEC is working to get the ill-gotten gains back and to get permanent injunctions to keep them from promoting securities again. The Department of Justice has also filed criminal securities fraud charges against all eight.
What about my investment adviser?
Although many people were caught up in this fraud, it appears that most could have avoided it if they had stuck with the advice of an investment professional. But what if your investment adviser or broker references information from social media when advising you?
Investment professionals are not immune to the desire to get an edge on other investors. They may accept information because it feels credible rather than because it is accurate. They could fall for someone trying to pump their stock, just as anyone could.
Information from social media is just one point in a constellation of data you should consider when making investment choices. Even when that information comes from a broker or investment adviser, it needs to be considered critically.
Social media information could give you an edge – or it might not. When your investment adviser or broker touts the importance of that information, they may be right to do so. Unfortunately, they may be wrong.
If your investment professional talked you into an investment that went against your overall investment strategy, they may have broken the rules.
Investment advisers and brokers are required to follow the strategy you agreed on. If they do not, they may be selling you inappropriate investments. If this causes you to lose money, you may have a remedy through the Financial Industry Regulatory Authority (FINRA).