Investor Alert: 


Social Media and Investing - Avoiding Fraud 


The SEC’s Office of Investor Education and Advocacy 

is issuing this Investor Alert to help investors be 

better aware of fraudulent investment schemes 

that may involve social media. U.S. retail investors 

are increasingly turning to social media, including 

Facebook,YouTube,Twitter, LinkedIn and other 

online networks for information about investing. 

Whether it be for research on particular stocks, 

background information on a broker-dealer or 

investment adviser, guidance on an overall investing 

strategy, up-to-date news, or to simply discuss the 

markets with others, social media has become a key 

tool for U.S. investors. 

While social media can provide many benefits for 

investors, it also presents opportunities for fraudsters. 

Social media, and the Internet generally, offer a 

number of attributes criminals may find attractive. 

Social media lets fraudsters contact many different 

people at a relatively low cost. It is also easy to create 

a site, account, email, direct message, or webpage 

that looks and feels legitimate – and that feeling of 

legitimacy gives criminals a better chance to convince 

you to send them your money. Finally, it can be 

difficult to track down the true account holders that 

use social media. That potential for anonymity can 

make it harder for fraudsters to be held accountable. 

As a result, investors need to use caution when using 

social media when considering an investment. 

What You Can Do To Protect Yourself - 

Tips to Help Avoid Fraud Online 

So, what can individual investors do to use social 

media, while at the same time protecting themselves? 

The key to avoiding investment fraud on the Internet is 

to be an educated investor. Below are five tips to help 

you avoid investment fraud on the Internet: 

Be Wary of Unsolicited Offers to 

Invest 

Investment fraud criminals look for victims on 

social media sites, chat rooms, and bulletin boards. 

If you see a new post on your wall, a tweet 

mentioning you, a direct message, an e-mail, or 

any other unsolicited – meaning you didn’t ask for 

it and don’t know the sender – communication 

regarding a so-called investment opportunity, you 

should exercise extreme caution. An unsolicited 

sales pitch may be part of a fraudulent investment 

scheme. Many scams use spam to reach potential 

victims. For example, with a bulk e-mail program, 

spammers can send personalized messages to 

millions of people at once for much less than the 

cost of cold calling or traditional mail.  If you 

receive an unsolicited message from someone you 

don’t know containing a “can’t miss” investment, 

your best move is to pass up the “opportunity” and 

report it to the SEC Complaint Center. 

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Look out for Common “Red Flags” 

Wherever you come across a recommendation 

for an investment – be it on the Internet or from 

a personal friend (or both), the following “red 

flags” should cause you to use extreme caution in 

making an investment decision: 

o	 It sounds too good to be true. Any 

investment that sounds too good to 

be true probably is. Compare any 

promised return with the returns 

on well-known stock indexes. Any 

investment opportunity that claims 

you’ll receive substantially more than 

that could be highly risky – or be an 

outright fraud. Be extremely wary of 

claims on a website that an investment 

will make “INCREDIBLE GAINS” or 

is a “BREAKOUT STOCK PICK” or 

has “HUGE UPSIDE AND ALMOST 

NO RISK!” Claims like these are 

hallmarks of extreme risk or outright 

fraud. 

o	 The promise of “guaranteed” 

returns. Every investment entails 

some level of risk, which is reflected 

in the rate of return you can expect 

to receive. If your investment is 

100% safe, you’ll most likely get a low 

return. Most fraudsters spend a lot 

of time trying to convince investors 

that extremely high returns are 

“guaranteed” or that the investment 

“can’t miss.” Don’t believe it. 

o	 Pressure to buy RIGHT NOW. 

Don’t be pressured or rushed into 

buying an investment before you have a 

chance to think about – and investigate 

– the “opportunity.” Be especially 

skeptical of investments that are pitched 

as “once-in-a-lifetime” opportunities, 

particularly when the promoter bases 

the recommendation on “inside” or 

confidential information. 

Look out for “Affinity Fraud” 

Never make an investment based solely on the 

recommendation of a member of an organization 

or group to which you belong, especially if the 

pitch is made online. An investment pitch made 

through an online group of which you are a 

member, or on a chat room or bulletin board 

catered to an interest you have, may be an affinity 

fraud. Affinity fraud refers to investment scams 

that prey upon members of identifiable groups, 

such as religious or ethnic communities, the elderly, 

or professional groups. Even if you do know the 

person making the investment offer, be sure to check 

out everything – no matter how trustworthy the 

person seems who brings the investment opportunity 

to your attention. Be aware that the person telling 

you about the investment may have been fooled 

into believing that the investment is legitimate 

when it is not. 

Be Thoughtful About Privacy and 

Security Settings 

Investors who use social media websites as a tool 

for investing should be mindful of the various 

features on these websites in order to protect their 

privacy and help avoid fraud. Understand that 

unless you guard personal information, it may be 

available not only for your friends, but for anyone 

with access to the Internet – including fraudsters. 

For more information on privacy and security 

settings, as well as other guidance regarding setting 

up on-line accounts with an eye toward avoiding 

investment fraud, see our Investor Bulletin Social 

Media and Investing: Understanding Your Accounts. 

Ask Questions and Check Out 

Everything 

Be skeptical and research every aspect of an 

offer before making a decision. Investigate the 

investment thoroughly and check the truth of every 

statement you are told about the investment. Never 

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rely on a testimonial or take a promoter’s word at 

face value. You can check out many investments 

using the SEC’s EDGAR filing system or your 

state’s securities regulator. You can check out 

registered brokers at FINRA’s BrokerCheck 

website and registered investment advisers at 

the SEC’s Investment Adviser Public Disclosure 

website. See our publication “Ask Questions” for 

more about information you should gather before 

making an investment. 

A Few Common Investment Scams 

Using Social Media and the Internet 

While fraudsters are constantly changing the way they 

approach victims on the Internet, there are a number 

of common scams of which you should be aware. 

Here are a few examples of the types of schemes you 

should be on the lookout for when using social media: 

“Pump-and-Dumps” and Market 

Manipulations 

“Pump-and-dump” schemes involve the touting 

of a company’s stock (typically small, so-called 

“microcap” companies) 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, or a 

telemarketer will call using the same sort of pitch. 

Often the promoters will 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. 

For an example of an actual case, see Securities 

and Exchange Commission v. Carol McKeown, 

Daniel F. Ryan, Meadow Vista Financial Corp.,

and Downshire Capital, Inc., Civil Action No. 

10-80748-CIV-COHN (S.D. Fla. June 23, 2010). 

Fraud Using “Research Opinions,” 

Online Investment Newsletters, and 

Spam Blasts 

While legitimate online newsletters may contain 

useful information about investing, others are 

merely tools for fraud. Some companies pay 

online newsletters to “tout” or recommend 

their stocks.  Touting isn’t illegal as long as the 

newsletters disclose who paid them, how much 

they’re getting paid, and the form of the payment, 

usually cash or stock.  But fraudsters often lie 

about the payments they receive and their track 

records in recommending stocks. Fraudulent 

promoters may 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. To 

learn more, read our tips for checking out 

newsletters. 

For an example of an actual case, see Securities 

and Exchange Commission v.Wall Street Capital 

Funding LLC, Philip Cardwell, Roy Campbell, and 

Aaron Hume, Civil Action No. 11-cv-20413-DLG 

(S.D. Fla. February 7, 2011). 

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. 

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For an example of an actual case, see Securities 

and Exchange Commission v. David Tanner, 

individually and d/b/a Capital Enhancement 

Club, Rocky D. Spencer, Marroc Corp. and 

Richard P. Kringen, Defendants, and Margaret 

Spencer, Omnibus LLC,Vectra Resources LLC 

and Dynamic Environmental Solutions, Inc., Relief 

Defendants, Civil Action No. 05-4057-SAC, 

(United States District Court; District of Kansas; 

Topeka Division May 4, 2005). 

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. For example, in a recent 

case, Securities and Exchange Commission v. 

Imperia Invest IBC (listed below), the fraudsters 

allegedly used a website to offer investors a 

“guaranteed return” of 1.2% per day. 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. While the federal securities laws require 

the registration of solicitations or “offerings,” 

some offerings are exempt. Always determine if a 

securities offering is registered with the SEC or a 

state, or is otherwise exempt from registration, before 

investing. 

For an example of an actual case, see Securities and 

Exchange Commission v. Imperia Invest IBC, Civil 

Action No. 2:10-cv-00986-B (D. Utah). See also 

In the Matter of Migliozzi and Flatow, SEC Rel. 

9216 (June 8, 2011) (settled order). 

Where can I go for help? 

Investors who learn of investing opportunities from 

social media should always be on the lookout for fraud. 

If you have a question or concern about an investment, 

or you think you have encountered fraud, please 

contact the SEC, FINRA, or your state securities 

regulator to report the fraud and to get assistance. 

U.S. Securities and Exchange Commission 

Office of Investor Education and Advocacy 

100 F Street, NE 

Washington, DC 20549-0213 

Telephone: (800) 732-0330 

Fax: (202) 772-9295 

Financial Industry Regulatory Authority (FINRA) 

FINRA Complaints and Tips 

9509 Key West Avenue 

Rockville, MD 20850 

Telephone: (301) 590-6500 

Fax: (866) 397-3290 

North American Securities Administrators Association 

(NASAA) 

750 First Street, NE 

Suite 1140 

Washington, DC 20002 

Telephone: (202) 737-0900 

Fax: (202) 783-3571 

Investor Assistance (800) 732-0330 www.investor.gov 

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Related Information 


For additional educational information for investors 

generally, see the SEC’s website for individual investors, 

Investor.gov. For additional information about 

securities fraud, see: 

NASAA Informed Investor Advisory: Social 

Networking 

Operation Broken Trust 

Avoiding Fraud 

Stopping Affinity Fraud in Your Community 

FINRA Warns Investors of Social Media-Linked Ponzi 

Schemes, High-Yield Investment Programs 

The Office of Investor Education and Advocacy has 

provided this information as a service to investors. It 

is neither a legal interpretation nor a statement of 

SEC policy. If you have questions concerning the 

meaning or application of a particular law or rule, 

please consult with an attorney who specializes in 

securities law. 

Investor Assistance (800) 732-0330 January 2012

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