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FINRA alerts investors to social media ‘Investment Group’ imposter scams

On Behalf of | Jan 29, 2024 | FINRA Compliance

An increase in scams linked to fraudulent “investment groups” promoted through social media channels has drawn the concern of the Financial Industry Regulatory Authority, ThinkAdvisor reports.

In an investor alert, FINRA said it has seen a significant spike in investor complaints, nearly a dozen since November, resulting from recommendations made by these groups.

The authority said the complaints that were 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.”

The investors who made the complaints alleged they had lost millions of dollars as a result of the fraud.

FINRA’s alert said those who perpetrate the scam might falsely portray themselves as registered professionals or fraudulently claim they are affiliated with well-known public figures and others in the investment industry.

The scammers also create fake personas by taking the name and other publicly available details about a registered investment professional whose disciplinary record is clean, the authority said. They then misuse this information to make it appear they are legitimate, without the knowledge of the professional they are impersonating.

FINRA detailed how the fraud scheme is carried out: “Scammers 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. They instruct investors to open an account at a specific broker-dealer, then guide them 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.”

Investors were urged to protect themselves from the scams by being wary of unsolicited messages or social media promotions of investment opportunities.  It was also advised that investment professionals should be thoroughly researched before making an investment with the help of FINRA’s BrokerCheck, which will show whether someone promoting an investment is a registered investment professional.  The site can verify the individual’s name, their firm, and their location.

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