Investor Alert: Social Media ‘Investment Group’ Imposter Scams on the Rise
Since fall 2023, FINRA has seen a significant spike in investor complaints resulting from recommendations made by fraudulent “investment groups” promoted through social media channels. Complaints received by FINRA and 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 messaging applications such as WhatsApp to communicate with interested investors and pitch investments. In some cases, investors have even found themselves added to encrypted chats directly without any prior contact.
FINRA continues to receive complaints regarding this threat, alleging millions of dollars in total losses. And if history is a guide, it’s likely that this is just the tip of the iceberg.
What to Know
As with other broker imposter scams, the bad actors might falsely portray themselves as registered professionals, in some recent cases fraudulently claiming affiliation with well-known public figures and others in the investment industry—people who are not involved in the scheme. Sometimes, deepfake videos impersonating well-known investment professionals have been used on social media in support of this scam. The scammers also create fake personas by taking the name and other publicly available details about a registered investment professional with a spotless disciplinary history. They then misuse this information to establish legitimacy, unbeknownst to the actual investment professional being impersonated.
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.
The scammers try to convince investors to transfer in as much money as possible from other bank and brokerage accounts. When investors report losses, the scammers promise to “make the money back” if the investors can transfer more funds into their accounts. One victim reported that the scammers are directing investors to borrow money from friends and family in order to make back the money that was lost.
Crypto Assets ‘Investment Groups’
Similar scams have promoted investments in crypto assets. As they do with “stock investment groups,” bad actors use conversations in private chat rooms to promote investments in high-risk crypto assets, often leading to losses that an investor cannot recover.
While some scammers create fraudulent investment groups that focus specifically on crypto assets, others will solicit investors to purchase stocks or crypto via communications within the same group.
How to Protect Yourself
In addition to FINRA, other international regulators, including the Canadian Securities Administrators (CSA), have issued similar warnings against social media investment group scams. To avoid becoming a victim of these or other types of ramp-and-dump scams, be particularly wary of unsolicited messages or social media promotions of investment opportunities. You can also adjust your privacy settings for messaging apps to prevent individuals who aren’t currently in your contacts from adding you to groups.
Always research investment professionals before making an investment. Use FINRA BrokerCheck to see if the promoter is a registered investment professional, and verify that the names of the person and the firm, along with their addresses or the locations where they do business, align with your own research. Never invest without first carefully and independently evaluating the product. And be aware that many brokerage firms in the U.S. specifically prohibit their registered investment professionals from using channels like WhatsApp to conduct business.
Learn more about how to protect yourself from financial grooming and similar crypto investment schemes, also known worldwide as pig butchering scams.
If you think you’ve been a target or victim of an "investment group" or other stock manipulation scheme, submit a regulatory tip to FINRA.
