SEC Talks about ways of Avoiding Fraud

The SEC issued its recommendations for avoiding fraud when investors are investing through social media.  With various schemes going through the internet investors should take care when reviewing investment proposals found through social media sites.  Many consumers are also using social media for information on particular investments reviewing comments made on LinkedIn, Facebook, Twitter and more for tips, evaluations, and ideas.  The challenge is that there is no way to prove where this information came from or how accurate, or inaccurate, it may be.

The key for investors is to evaluate information they receive, regardless of how great it looks on social media.  Verify the information through additional sources prior to viewing it as fact in avoiding fraud.

Here are some tips for how to avoid investment fraud:

  • Verify the Source.  Research the person that is posting the information.  What credentials do they have for providing investment analysis or advice?  If you can’t locate information on them anywhere other than the social media sites this should be a red flag.
  • Be an Educated Investor.  Learn everything you can about the industry you are investing in.  What are typical profit margins, investor returns, and strategic positioning that makes an investment good or bad?
  • Unsolicited Offers.  If someone you don’t know sends you a private message, posts on your wall, or sends a tweet mentioning you “exercise extreme caution”.  Find out who this person is.  Research them prior to responding.  If people have mentioned them as a potential fraudster block them from viewing your profile.
  • Report Suspicious Activity.  The SEC Complaint Center will take reports of suspicious activity and investigate it.  If all investors filed reports more people would be saved from becoming a victim of a scam.
  • Too Good to Be True.  If something is too good to be true – it probably is.  Industry standards hold steady because there are certain facts that do not change, regardless of the company.  For example a medical drug has to go through FDA trials.  There is no way around it.  If someone is offering for you to invest in something that can skip these trials and go straight to market… this is a red flag. This is one way in avoiding fraud.  The same holds true for all industries and that is why it pays to be an educated investor.
  • Guaranteed Returns.  Investments are risky which is why the reward can be so great.  Simultaneously there is no way to guarantee returns.  Be suspicious of anyone that offers this to you.
  • Privacy Settings.  Set your social media profiles to private so that only people you know have access to your personal information.  You can also determine what information the site itself shares with its partners.

Investors should use caution when making any investment.  The more informed you are the better decisions you will be able to make.  Rather than taking people’s word for the outlined facts, learn about the industry and the company so that you can ask educated and informed questions prior to making investment decisions.

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