Steer Clear of Investment Group Imposter Scams
Securities-industry regulator FINRA is warning investors to watch out for imposters posing as well-known investment professionals in an attempt to lure them into fake stock investment groups.
The watchdog group states on its website that it has seen “a recent significant spike in investor complaints resulting from recommendations made by fraudulent ‘investment groups’ promoted through social media channels.” Those who have filed complaints have reported losing millions of dollars to these scams.
To avoid becoming a victim of imposter investment scams, it’s important to understand how they work and what you can do to protect yourself.
[ See: What Is Investment Fraud and How to Avoid It ]
How investment group imposter scams work
The scam begins with ads for stock investment groups on social media sites such as Facebook. Scammers gain investors’ trust by portraying themselves as well-know investment professionals and firms. For example, they have been impersonating financial gurus such as Cathie Wood of ARK Investment Management, Peter Lynch of Fidelity Investments, Ray Dalio of Bridgewater Associates, and hedge-fund managers Bill Ackman and Steve Cohen, according to The Wall Street Journal.
According to FINRA, scammers use social media ads to lure people to group chats on WhatsApp to pitch investments. They start by promoting well-known stocks then push those in the group to invest in a low-priced, low-volume U.S.- or Hong Kong-listed stock.
The scammers direct investors to specific broker-dealers to open accounts and tell them which stocks to buy at certain times and prices, leading them to unwittingly inflate stock prices, according to FINRA. When the stock prices crash and investors lose money, the investment group moderators encourage them to liquidate other accounts they have to invest more and earn their money back. One victim reported to FINRA that the scammers told members of the investment group to borrow money from friends and family to make back the money that was lost.
How to avoid investment group imposter scams
Take these steps before investing or joining any online investment groups.
Question the offer: Exercise caution any time you see a post on social media or receive communication that appears to come from a well-known investor or financial guru. Ask yourself why a millionaire or billionaire investor would be inviting the average public to join their special investment groups. And remember that any claims that seem too good to be true—such as the opportunity to earn outsized returns on an investment—are false promises meant to lure in unsuspecting investors looking to make a fast buck.
Research investment professionals: Use FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure database to confirm whether investment professionals advertising online are legitimate. If they appear to be real, use these databases to verify whether the information the supposed investment professionals or firms are sharing in their ads, emails or websites match the phone numbers, websites, addresses and other details listed in their official Client Relationship Summary (Form CRS) on file with the SEC. You could contact firms directly using the information in Form CRS to see if they offer investment groups such as those being promoted online.
Look for red flags: Be wary of investment websites or alleged investment professionals offering only one type of investment. FINRA also cautions investors to watch out for investments that require a high minimum deposit (such as $200,000 or more) or that claim to have low or no risk, higher-than-average returns or have FDIC insurance coverage (which doesn’t apply to securities). Also, be aware that many U.S. brokerage firms prohibit their registered investment professionals from using WhatsApp or similar channels to conduct business.
Don’t send money or personal information to individuals: If a supposed investment professional is asking you to send your information to a personal email address rather than a firm’s email address or to send money or cryptocurrency to an individual account, it’s likely a scam.
Get a second opinion: Talk with someone you trust before making any investment decisions. This might be your financial advisor, accountant, attorney, a family member, or even a colleague or your boss. Taking the time to get another opinion can help you avoid jumping too quickly into a risky investment. You also can contact FINRA if you’re concerned about investment offers you have seen or received.
[ Keep Reading: Anatomy of a $50,000 Scam ]
3 Steps to Safer Money,
Try it Free for 30 Days
Step 1
Start your free,
no-risk trial
Step 2
Connect the accounts and cards you want protected
Step 3
Stay alerted to any
unusual activity