Social networks are a great place for advisors to connect with potential clients, but they’re also a prime breeding ground for con artists looking to defraud investors, warns the North American Securities Administrators Association (NASAA).
“Before investing through a social network, ask yourself these questions: Have I verified that the promoter is legitimate? Do I understand the risks of the investment?” says the NASAA in an advisory published on Wednesday.
The advisory lays out the risks for investors who look for opportunities on websites such as Facebook, Twitter, LinkedIn, eHarmony and other online social networks and communities.
Specifically, the NASAA cautions that while con artists have traditionally used face-to-face meetings to establish strong bonds with their marks, the Internet allows them to establish trust and credibility more quickly and easily.
“Just because someone has ‘friended’ you online does not mean that person is your friend when it comes to investing,” said NASAA President David Massey (left) in a statement. “The person behind the profile may be deliberately mimicking your likes and interests to lure you into a scam.”
For years, the world of investing has been rife with con artists who launch “affinity fraud” schemes by targeting victims through offline social networks such as community service groups, professional associations or faith-based organizations, the NASAA notes.
Scammers have traditionally infiltrated groups of individuals connected through common interests, hobbies, lifestyles, professions or faith. Online, according to the NASAA, “the scammer has immediate access to potential victims through their online profiles, which may contain sensitive personal information such as their dates or places of birth, phone numbers, home addresses, religious and political views, employment histories, and even personal photographs.”
Read on to learn about the red flags of online investment scams that the NASAA has identified.
The North American Securities Administrators Association (NASAA) advises investors to watch for these red flags that signal an online investment scam:
Promises of high returns with no risk. Guarantees of returns around 2% a day, 14% a week or 40% a month are too good to be true.
Offshore operations. Headquartered offshore? This makes it harder for regulators to shut the scam down.