FINRA Sees Spike in ‘Investment Group’ Frauds on Social Media
Bad actors are posing as RIAs online and pitching investments though encrypted group chats, the organization warns.
The Financial Industry Regulatory Authority says it’s seeing a “significant spike” in investor complaints of recommendations made by fraudulent “investment groups” promoted through social media channels.
Complaints received by FINRA and posted on social media “describe bad actors, posing as registered investment advisers, who initially advertise ‘stock investment groups’ on Instagram and other social media channels and then turn to encrypted group chats on WhatsApp to communicate with interested investors and pitch investments.”
Since November, FINRA said that it has received “nearly a dozen investor complaints regarding this threat, alleging millions of dollars in total losses.”
As with other broker imposter scams, FINRA states that “the bad actors might falsely portray themselves as registered professionals, in some recent cases fraudulently claiming affiliation with well-known public figures and others in the investment industry — people who are not involved in the scheme.”
The scammers, FINRA states, “also create fake personas by taking the name and other publicly available details about a registered investment professional with a spotless disciplinary history. They then misuse this information to establish legitimacy, unbeknownst to the actual investment professional being impersonated.”
Scammers, according to FINRA, “start out by promoting investment in a well-known, actively traded stock and then, through ongoing conversations in the private chat platform, move their targets to invest in a low-priced/low-volume U.S.- or Hong Kong-listed stock.”
Investors are then told “to open an account at a specific broker-dealer,” and then are guided “on which stocks and how much to purchase and at what times and prices, essentially leading the investors to unwittingly manipulate the price of the securities upwards. At some point, the investors become unable to sell, and the price of the securities inevitably crashes,” FINRA states.
The scammers try to convince investors to transfer in as much money as possible from other bank and brokerage accounts.
“When investors report losses, the scammers promise to ‘make the money back’ if the investors can transfer more funds into their accounts,” FINRA states.
FINRA warns investors to be “particularly wary of unsolicited messages or social media promotions of investment opportunities.”
Use FINRA BrokerCheck “to see if the promoter is a registered investment professional, and verify that the names of the person and the firm, along with their addresses or the locations where they do business, align with your own research,” the organization advises.