Recently, I’ve noticed a couple of investment schemes reported in the news that were promoted on social media websites.

In one case, the SEC charged an Illinois-based investment advisor with offering fictitious securities on LinkedIn, a well-known social media site used by professionals (including myself) to expand their networks and industry knowledge.

The SEC is alleging that Anthony Fields offered more than $500 billion in fictitious investments to people through discussions on the website. The news release goes on to say that Fields’ offer attracted interested investors. The release also includes education materials related to social networking that provide helpful advice for investors.

In another case, the Texas State Securities Board (TSSB) announced it was returning money to 43 investors from an investment scheme it had investigated. The TSSB said its investigation of Warr Investment Group and its CEO, James Elton Warr, revealed they were selling investments in a fraudulent real estate program, which the respondents promoted through YouTube and Internet advertising.

A few years ago, we issued an Investor Watch warning people of the dangers of online investment groups and meet-ups. We later turned the Watch into a video podcast that has been quite popular on our YouTube page.

Since releasing these materials, the use of social media sites for networking and communicating has become the norm for many people – Facebook claims to have 800 million users, and YouTube claims that users view over three billion videos every day. Twitter and LinkedIn also claim to have hundreds of millions of users.

In my experience, once something becomes second nature – like checking your status updates or accepting new “friends” on social networks – people tend to let their guard down. Since we tend to trust our friends, it makes sense that we would be open to checking out products or services they are using.

This is where the scam artist comes in. If he can become your online “friend” or get someone you know interested in a product, there is a good chance others in your network will hear about it. Once this happens, there is the possibility that the scam artist could attract investors thought word-of-mouth. This is what we see in many investment scams, which we call affinity frauds.

To protect yourself and people you know from falling victim to this type of fraud, there are a number of things you can do.

Suggested Reading

Investor Watch: principal protected notes (PPNs)

New Video: Using a Registered Financial Advisor

Financial literacy: Helping kids succeed in the classroom

More Resources

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