4 red flags may indicate social media investing scams

In an investor alert issued on July 25, 2014, the Securities and Exchange Commission issued a warning about how to recognize stock manipulators who attempt to influence the price of a stock by issuing false information using social media. The alert emphasized how easily and quickly false information can be spread by market manipulators who may be posing as legitimate or trusted sources of information. Plan sponsors may want to communicate this information to their 401(k) plan participants.

The SEC recommends that investors try and verify the identity of a source when receiving investment information via social media. Tips that may indicate information is not legitimate include: slight variations or typos in the sender’s account name, profile, email address, screen name, or handle. In addition, the SEC advises that when contacting a company or attempting to access its website, be sure to use the contact information or website address supplied by the company itself.

Be aware that some social media operators have systems that may help consumers verify whether or not a sender is genuine. For example, Twitter verifies accounts for authenticity by posting a blue verified badge (a solid blue circle containing a white checkmark) on Twitter profiles. The SEC advises investors to pay attention to the following red flags which may be indicative of social media fraud:

1. Limited history of posts. Be skeptical of information from social media accounts that lack a history of prior postings or messages.

2. Pressure to buy or sell immediately. Be wary of messages urging you to buy a hot stock before you miss out or to sell shares of a stock you own before the price goes down after negative news is announced. Be especially cautious if the promoter claims the recommendation is based on “inside” or confidential information.

3. Unsolicited investment information or offers. Exercise extreme caution regarding information provided in new posts on your wall, tweets, direct messages, emails or other communications that solicit an investment or provide information about a particular stock if you do not personally know the sender (even if the sender appears connected to someone you know).

4. Unlicensed sellers. Federal and state securities laws require investment professionals and their firms who offer and sell investments to be licensed or registered. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. Check license and registration status by searching the SEC’s Investment Adviser Public Disclosure website or the Financial Industry Regulatory Authority’s BrokerCheck website. The BrokerCheck website also provides background information on licensed financial advisers.

To report a problem or to ask a question, you can submit a complaint or question to the SEC or call the agency directly at (800) 732-0330. 

Robert C. Lawton is president of Lawton Retirement Plan Consultants, LLC (lawtonrpc.com), an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at bob@lawtonrpc.com or 414.828.4015.