More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
Social networks are a great place for advisors to connect with potential clients, but they’re also a prime breeding ground for con artists looking to defraud investors, warns the North American Securities Administrators Association (NASAA).
“Before investing through a social network, ask yourself these questions: Have I verified that the promoter is legitimate? Do I understand the risks of the investment?” says the NASAA in an advisory published on Wednesday.
The advisory lays out the risks for investors who look for opportunities on websites such as Facebook, Twitter, LinkedIn, eHarmony and other online social networks and communities.
Specifically, the NASAA cautions that while con artists have traditionally used face-to-face meetings to establish strong bonds with their marks, the Internet allows them to establish trust and credibility more quickly and easily.
“Just because someone has ‘friended’ you online does not mean that person is your friend when it comes to investing,” said NASAA President David Massey (left) in a statement. “The person behind the profile may be deliberately mimicking your likes and interests to lure you into a scam.”
For years, the world of investing has been rife with con artists who launch “affinity fraud” schemes by targeting victims through offline social networks such as community service groups, professional associations or faith-based organizations, the NASAA notes.
Scammers have traditionally infiltrated groups of individuals connected through common interests, hobbies, lifestyles, professions or faith. Online, according to the NASAA, “the scammer has immediate access to potential victims through their online profiles, which may contain sensitive personal information such as their dates or places of birth, phone numbers, home addresses, religious and political views, employment histories, and even personal photographs.”
Read on to learn about the red flags of online investment scams that the NASAA has identified.
The North American Securities Administrators Association (NASAA) advises investors to watch for these red flags that signal an online investment scam:
Promises of high returns with no risk. Guarantees of returns around 2% a day, 14% a week or 40% a month are too good to be true.
Offshore operations. Headquartered offshore? This makes it harder for regulators to shut the scam down.
Requests for payment through e-currency websites. Unregulated e-currency sites let con artists cover their money trails.
Bogus bonuses. Offers of referral bonuses may just be a way for con artists to recruit their marks’ friends into the scheme.
Phony websites. Professional-looking websites offer little to no information about the company and no written information about the investment, such as a prospectus detailing the investment’s risks.
How to protect against online scammers? Read on.
Here’s how to protect against online scammers, according to the NASAA’s fraud alert:
Safeguard personal information. Adjust security settings to a high level of privacy, and think twice before posting personal information online.
Search the names of people and companies connected to an investment. “Do a search for the name of the person offering you the investment and the companies involved,” says the NASAA. “If there are few results, or their name doesn't appear anywhere outside of the one investment program they're offering you, that's a red flag that they may be using multiple aliases, or hiding behind a fake identity.”
Beware of testimonials from satisfied investors. Scam artists in Ponzi schemes frequently pay out high returns to early investors by using money from later arrivals.
Get a prospectus. Written documentation should detail an investment’s risks and steps for getting money out of it.
Resist sales pressure. Fraudsters often push investors to “act now” before an opportunity is lost. Take time to check out the investment.
Contact a state or provincial securities regulator. Determine if an investment and the person recommending it are properly registered. To find a state or provincial securities regulator, visit www.nasaa.org.