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Understanding the Securities Fraud Risks Involved With Social Media

March 16, 2021 Blog

When investing on your own, it is important to do your research. All investments carry risk; and, as an individual investor, it is up to you to make sure your decisions are as informed as possible. Increasingly, individual investors are relying on social media as a primary source of information. But, while it is possible to find trustworthy information on Twitter, Facebook and other social media platforms, as securities fraud attorney Jake Zamansky explains, relying on social media can be risky as well.

FINRA Warns of Risks of “Following the Crowd” on Social Media

Earlier this year, the Financial Industry Regulatory Authority (FINRA) published an article discussing the risks involved with finding investment-related information on social media. In the article, titled Following the Crowd: Investing and Social Media, FINRA highlights the increasing prevalence of misinformation online and provides 10 tips for cautiously evaluating information posted on social media platforms. Some of these tips include:

  • Consider the source of all information posted on social media, and research the original source of any information that gets reposted (or that is purportedly reposted from a legitimate source).
  • Make sure you understand all of the risks associated with a particular investment, including the risks associated with day trading, options, leverage and margin.
  • Avoid making rash or emotional decisions. Fraud artists often rely on investors’ fear of missing out to get them to make dangerous and uninformed decisions.
  • Consider these three questions before pursuing any investment opportunity: (i) Does the investment align with your financial goals? (ii) Are you comfortable with the level of risk? (iii) Are you risking money that you can afford to lose?
  • Remember the importance of diversification. When investing, putting all of your eggs in one basket might have the opportunity to pay off big, but it could also mean losing your entire portfolio.

Investment scams that utilize social media to target investors won’t always look like scams. Scammers are becoming increasingly sophisticated, and they know how to target investors’ vulnerabilities. With this in mind, individual investors need to be extremely careful; and, when in doubt, they should avoid potentially-risky investments.

Recent SEC Enforcement Action Highlights Risks of Relying on Social Media

A recent SEC enforcement action highlights the risks of relying on investment information posted on social media. On March 15, 2021, the SEC announced fraud charges against a trader, “who used social media to spread false information about a defunct company, while secretly profiting by selling his own holdings of the company’s stock.”

According to the SEC’s Complaint, the trader (who used the Twitter handle @OCMillionare) falsely told his followers that the company, “was reviving its operations, expanding its business, and being backed by ‘huge’ investors.” His tweets caused the company’s share price to rise by over 4,000 percent in the subsequent days, and the trader subsequently sold his shares in the defunct company for a profit of nearly $1 million.

Contact Securities Fraud Attorney Jake Zamansky

If you have lost money in an investment promoted on social media, securities fraud attorney Jake Zamansky may be able to help you recover your investment losses. To discuss your situation with Mr. Zamansky in confidence, call 212-742-1414 or request a free consultation online today.