Mario Massillamany Warns: Internet Fraud Abounds For Investors

Mario Massillamany

Internet sites such as Facebook, Twitter, YouTube, Linked-In have been a boon for investors, who can research stocks, check out financial advisors/brokers, browse the latest investor news, plan investment strategy or communicate with fellow investors or investment advisors.

There’s also a dark side to such easily accessible information. The Internet has become a useful tool for investment fraud, with online fraudsters getting increasingly better at coming off like a genuine presence through fraudulent websites, email and other communications. To wit:

Chat room victims
Interactive sites, including chat rooms and bulletin boards, provide many “targets of opportunity” for fraudsters. Be wary of tweet or email for any direct message from an unknown source about special investment opportunities. The latest technology allows “spammers” to send millions of personalized emails about “can’t miss” investments and other opportunities. You can report to the SEC Complaint Center any suspicious activity. Watch out for these favorite ruses:

• Sound too good to be true? It probably is. Compare the promise of superior returns with reputable stock indexes. If the “incredible” returns are much more, it’s at least high risk, if not actual fraud.
• “Guaranteed” returns. Most healthy returns are far from guaranteed.
• The pitch to act right now, lest this golden moment pass you by: a time-honored fraudster tactic. Always take time to check out the offer. Be really suspicious of “once-in-a-lifetime” opportunities based on special “inside information.”

Fraudsters lurk in online groups
Don’t make an investment based solely on the advice of a member of an online group you participate in. Fraudsters love to prey on such groups, seeking to connect with the group and the informal rapport among its members. Even if the advice is from someone you know, that person could have been duped by the fraudulent investment scheme he or she is unknowingly promoting.

Note security and privacy settings
Think about how the information you provide on social networks and other sites across the Web could be obtained by those who are not friends, but fraudsters. Know how any privacy or security settings work.

Common scams
There are a number of tried and true scams on the Internet. Here are some common ones.

First they pump, then they dump
“Pump and Dump” frauds hype a company’s stock with misleading and outright false statements on websites urging readers to buy or sell a stock quickly before the price drops. They may cite inside information, or a guaranteed method for picking stocks. Such statements may come from company insiders or paid promoters who stand to gain as their shares are “pumped” up by a buying frenzy they ignite. Then they sell or “dump” their shares and stop promoting the stock. Consequently, the price goes down and investors lose money.

Fraud can look respectable
Fraud can look very legitimate. There are respectable websites and web-based newsletters that offer investment information and advice. And companies may pay newsletters to push specific stocks. This is legal as long as the newsletters provide proper disclosure about who is paying them, how much the companies are paying, and by what means.

But fraudsters can lie about such information while claiming to be independent, unbiased purveyors of investment information … who just happen to stand to profit handsomely by persuading others to buy particular stocks, often penny stocks.

And it gets worse. Some of these newsletters may be advertised on legitimate websites, such as the online financial pages of news organizations. For advice on how to tell what is legitimate, go to the SEC’s tips for checking out newsletters.

High Yield = Big Fraud
High-yield investment programs (HYIPs) are unregistered investments run by unlicensed individuals that are often frauds. Superior returns are touted, with little or no risk. A HYIP website might promise (should we say guarantee?”) annual, monthly, weekly or even daily returns of 30 or 40 percent or more. Some use the term “prime bank” program.

Offering frauds
An offering fraud is a kind of security that’s offered to the public where the terms are materially misrepresented, particularly about the likelihood of a return. Some offerings are not fraudulent, but fail to comply with pertinent registration rules of the federal securities laws. Some offerings are also exempt from this provision. It’s best to see if they are registered with the SEC, a state, or otherwise exempt.

Resources
For more information regarding Internet fraud, contact the SEC, FINRA, or your state securities regulator.

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

Also note:

• SEC’s EDGAR filing system or your state’s securities regulator.
• FINRA’s BrokerCheck website
• SEC’s Investment Adviser Public Disclosure website

See the SEC’s website at www.investor.gov for its publication, “Ask Questions,” about the information it’s best to have before making an investment.