With the increasing use of internet-based information, more and more people are using the internet and social media to help them formulate their investment decisions. While the online information is available at your fingertips and offers effortless comparison, this same source is easier for fraudsters to lure you. Scammers quickly adapt to new ways to reach people and thus, have made the internet their source to reach mass audiences in less time. They have various ways to reach you via the internet and one such source is social media.
What are social media scams?
Facebook, Twitter, Telegram, WhatsApp, YouTube, and LinkedIn are among the most popular tools or platforms used by investors or prospective investors to gather information. Whether they want to see the ongoing investment trend, research about a particular stock, gather recent news, or discuss the market, they will use social media as their platform. Scamsters use this opportunity and offer investors fake recommendations, unsolicited investment tips, and misleading information under fake identity or anonymity. This practice of luring them into taking a wrong investment decision via social media is known as a social media scam. Below are a few techniques through which scamsters persuade investors.
- Creating fake profiles as successful traders and offering guaranteed returns and tips
- Publishing fake testimonials
- Circulating forged investment opportunities and fake recommendations to a mass audience using messaging platforms
- Offering misleading information via platforms such as Twitter, Facebook, etc. to carry out Pump and Dump activities
- Sending online investment newsletters about investing with fake information
- Posting screenshots of their so-called stock portfolio to ask for the subscription fee to get stock recommendations or investment tips
- Taking registration fees for the workshops with a promise to make them technical analysts or trading experts but not hosting it
- Developing fake apps/websites and then promoting them via social media channels to establish an authentic image of a company or an individual
While fraudsters are constantly changing their ways to approach the victims via social media platforms, the above-mentioned are a few of the social media scams you should be aware of.
SEBI’s measures to deal with these social media scams
As per reports, social media scams have increased by 156% in India and continue to rank 3rd globally as a source of malicious activities. (Source: Economic Times) Concerned over these growing social media investment scams via Twitter, Facebook, WhatsApp, Telegram, and more, the stock market regulator SEBI (Securities and Exchange Board of India) has increased its surveillance on such platforms. This is done in order to make sure that these fraudsters don’t harm investors’ interests.
- It has enhanced investor awareness programs to prevent them from taking their investment decisions based on the details received via social media platforms
- It is planning to create a Data Lake Project to increase its surveillance over social media to track and prevent frauds
- If an individual or a company is found guilty of circulating unsolicited tips, offering guaranteed returns, or fake recommendations via social media, it takes strict legal actions against them like heavy penalties, banning them from the exchange, etc.
- It is also looking at closer coordination with banking and telecom sectors to get the call records and financial statements of the companies or individuals under scrutiny
- It has created an online complaint cell called ‘SEBI Complaints Redress System (SCORES)’ where you can complain about frauds or suspicious activities via social media along with any other complaints you have
- It has also introduced the SEBI (Investment Advisers) Regulations 2013 which has a detailed set of rules with an aim to ensure that investors are treated fairly and receive advice that suits their risk profile
Few examples of social media scams where the regulators have taken appropriate actions against fraudsters.
- SEBI imposed a fine of ₹2.84 crores on 6 individuals and restrained them from participating in any stock-market related activities. These 6 individuals are guilty of passing stock tips through a Telegram channel called ‘Intraday Calls – Bull Run Investment Educational Channel’. This was done with an objective to artificially inflate the price of a particular stock and make profits. (Source: Live Mint)
- 2 individuals via WhatsApp messages promised 200% guaranteed returns on the deposit of ₹25,000 along with trading tips to the investors. After it came into SEBI’s notice, they took necessary actions and levied a penalty of ₹10 lakhs on both the individuals and prohibited them as well as their associated companies to act as an investment advisor or any other unregistered activities in the securities market. (Source: Times of India)
- An individual was arrested from Rajasthan for investment fraud. He was reportedly running an investment page on Instagram named ‘Profit_Mania’ to dupe people by offering high returns. The complainant claimed that he reached out to the owner (accused) who promised that he will make his investment 3X in no time. (Source: India Today)
- The market regulator SEBI cooperated with their peer US to bust a major social media investment scam named ‘Profit Paradise Scam’. The 2 operators (1 in Mumbai and 1 in Hyderabad) used to invite investors through pitches on social media to pool in money along with other investors to make huge profits. Even though they were operating from India, they disguised their location to be in the US using false internet data like proxy servers. (Source: The Hindu)
The above-mentioned are just a few of the many scams that have happened in the Indian stock market using various social media channels.
Red flags you must notice to stay safe
Fraudsters hit their target with different persuasion techniques that are crafted to aim at the victim’s psychology. A few of the red flags or persuasion techniques that you must be aware of are:
- Schemes that sound too good to be true
- Individuals or companies offering guaranteed returns
- ‘Everyone is buying these stocks’ pitches
- Pressure to send money right now or else you will miss the opportunity
Ways to dodge social media investment scams
As the social media scams in the stock market are increasing rapidly, you need to take proper measures so that you don’t fall into the trap. Below are the few measures.
To conclude, online fraudsters in the stock market are increasing at a rapid pace. You can fight them effectively by staying alert. Even though exchanges and the market regulators are taking required measures to protect investors, it is our responsibility too as an investor to be cautious and vigilant. So, from now on whenever you learn about an investment opportunity or a stock recommendation from social media, always be watchful. If you find something suspicious, report it to the exchange or SEBI immediately. It is advisable that you educate yourself so that you have at least working knowledge of the market/company/scrip before you invest.
Disclaimer: This article is for educational purposes only.