(Sponsored Content) FINRA is a not-for-profit organization dedicated to investor protection and market integrity. Under the oversight of the US Securities and Exchange Commission, FINRA regulates one critical part of the securities industry—brokerage firms doing business with the public in the US.
FINRA has seen a recent 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 WhatsApp to communicate with interested investors and pitch investments.
Since November, FINRA has received nearly a dozen investor 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.
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. 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 US- 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 requesting that investors borrow money from friends and family in order to make back the money that was lost.
To avoid becoming a victim of these or other types of investment scams, be particularly wary of unsolicited messages or social media promotions of investment opportunities. 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 US specifically prohibit their registered investment professionals from using channels like WhatsApp to conduct business.
For further information on protecting your money or to file a tip or complaint, visit www.FINRA.org/MoneyShow.