Hash Tag Scam: Investors Vulnerable To ID Thieves On Twitter And Facebook

By Brian O'Connell AAA

The social media site Facebook Inc. (Nasdaq:FB), based in Menlo Park, Calif., had some 1.23 billion monthly active users as of the end of 2013, while San Francisco-based Twitter (Nasdaq:TWTR) had over 230 million monthly active users, according to its SEC filing in November 2013. Most people have trouble comprehending numbers that high, but a few groups eat high numbers like candy, most notably mathematicians and investment fraud artists.

Mathematicians are a force of good – they spend their days learning how the world works, one digit at a time, and try to apply it to the real world and make it a better place.

It’s that other group - investment fraud artists - that should concern investors who are active on social media sites like Facebook, Twitter and job networking sites like the Mountain View, Calif.-based LinkedIn (NYSE:LNKD).

According to Javelin Strategy and Research, 62 million adults have made purchases on a social network in the past year.

Nobody is saying that Facebook is about to surpass Amazon or eBay in the online sales market, but 62 million users is certainly a large enough number to grab the attention of identity thieves.

Fortunately, it’s also caught the radar screen of Uncle Sam, specifically the U.S. Securities and Exchange Commission's Office of Investor Education and Advocacy. The agency recently released an investor alert warning investors of potential investment scams that use social media sites as a gateway. Here are some key takeaways from the SEC alert:

  • Retail investors mostly use social media sites to research specific stocks; check out background information on investment professionals; look for guidance on investment strategy; track real-time, up-to-date news; or engage other investors in social media chat sessions.
  • Facebook, Twitter, LinkedIn and YouTube - the video-streaming site owned by the Mountain View, Calif.-based Google (Nasdaq:GOOG) - are the most common social media sites trolled by identity thieves.
  • Online fraudsters target social media sites to reach millions of potential victims because the cost is zero or negligible, and because those sites are easy to access, sign onto and create an account with minimal oversight.
  • I.D. thieves also like social media sites because, in general, such sites permit users to create legitimate-looking email, website and social media accounts, “and that feeling of legitimacy gives criminals a better chance to convince you to send them your money,” the SEC says.

A separate survey from Brunswick Group, a communications firm, reports that 29% of survey respondents are tracking investment ideas initially identified on social-media platforms. The firm says that number will only grow as social media sites become more pervasive and more aggressively used by investors.

Fortunately for consumers, it’s relatively easy for law enforcement officials to track down I.D. thieves who are active on social media sites. “That potential for anonymity can make it harder for fraudsters to be held accountable,” the alert reports. “As a result, investors need to use caution when using social media when considering an investment.”

SEC Already Snagging Social Media Fraudsters

The SEC has already cast a net over social media sites, ensnaring one investment firm using sites like Facebook to run a pyramid scheme.

On March 5, 2014, the agency issued an enforcement action against Fleet Mutual Wealth Limited and MWF Financial – collectively known as Mutual Wealth. The SEC has charged the firm with “exploiting investors through a website and social media accounts on Facebook and Twitter, falsely promising extraordinary returns of 2% to 3% per week for investors who open accounts with the firm.”

The agency said Mutual Wealth engaged in high-frequency trading that ran money in and out of trades every few minutes, thus creating an appearance of a highly efficient trading strategy that scoured the market on a real-time basis, looking for the best market opportunities.

To reach potential investors, Mutual Wealth used Facebook and Twitter to recruit investors and offer referral money to investors who brought other investors into the pyramid scheme. The SEC says that about 150 U.S. investors opened accounts with Mutual Wealth, investing approximately $300,000 in total.

“Mutual Wealth used Facebook and Twitter, as well as a team of recruiters, to spread a steady stream of lies that tricked investors out of their money,” says Gerald W. Hodgkins, an associate director in the SEC’s Division of Enforcement. “Fortunately we were able to quickly trace the fraud overseas and obtain a court order requiring Mutual Wealth to shut down its website before the scheme gains more momentum.”

Common Facebook and Twitter posts on sites that Mutual Wealth created read something like this, the SEC says:

  • “HFT [high frequency trading] portfolios with ROI of up to 250% per annum. Income yield up to 8% per week.”
  • “$1,000 investment into the Growth and Income Portfolio made on April 8th, 2013 is now worth $2,112.77.”

According to the SEC, Mutual Wealth “regularly posts status updates for investors on its Facebook page, and the comment sections beneath the posts are often filled with solicitations by the accredited advisors. Mutual Wealth also tweets announcements posted on its Facebook page.”

Actionable Steps for Social Media Users

Mutual Wealth is hardly alone. The SEC says it is getting more aggressive about identifying and uprooting fraudulent investment firms operating on social media sites.

In the meantime, what can investors do to better protect themselves while on sites like Twitter and Facebook? Start with these tips from the SEC:

Go private – Click on the default settings when opening an account on social media sites. “The default privacy settings on many social media websites are typically broad and may permit sharing of information to a vast online community,” the agency says. “Modify the setting, if appropriate, before posting any information on a social media website.”

Go dark – Never hand over any personal financial data to firms purporting to be investment companies on sites like Facebook and Twitter. That means no Social Security numbers, no bank account data, or credit or debit card numbers.

Go slow in allowing strangers access to you – Be vigilant who you share your social media “space” with online. “There is no obligation to accept a “friend” request of a service provider or anyone you do not know or do not know well,” says the SEC, and that goes double for investment firms looking to “friend” you on social media sites.

Go secure on your smart phone – The SEC is blunt about securing your smart phone against social media intruders. “If your mobile devices are linked to your social media accounts, make sure that these devices are password protected in case they are lost or stolen,” the agency advises.

The Bottom Line

There’s no doubt identity thieves are increasingly viewing social media sites as a wide-open path to creating havoc with your financial data. Be thorough, diligent and skeptical of any investment firm who wants your money after contacting you via Facebook or Twitter. That could be the best investment move you make all year.

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