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SEC Issues Investor Alert Regarding Social Media and Investing

The Securities and Exchange Commission’s Office of Investor Education and Advocacy issued an investor alert aimed at helping investors protect themselves against online investment fraud. The alert was prompted, in part, by the SEC’s recent charges against an Illinois man who used various social media sites, such as LinkedIn, to promote more than $500 billion in fictitious securities. The postings generated interest from numerous potential buyers in the fictitious offerings.

The alert offers five ways to help avoid becoming the victim of online investment fraud:

1. Unsolicited Investment Opportunities Exercise extreme caution when you receive any unsolicited message from someone you do not know regarding an investment opportunity. Many scammers use spam to reach potential victims. If you receive any post on your wall, tweet or e-mail from someone you do not know regarding a “can’t fail” investment opportunity, the safest thing to do is delete it.

2. Know the common warning signs If an investment sounds “too good to be true,” promises “guaranteed” returns or is promoted as a “once-in-a-lifetime” opportunity, you should be very wary.

3. Be aware of “affinity fraud” Affinity fraud refers to scams that prey upon members of identifiable groups such as religious, ethnic or professional organizations. You should never make an investment solely based upon the recommendation of a member of a group you belong to without thoroughly investigating the investment. Even if the individual recommending the investment is known to you and seems trustworthy, remember that the individual may have been tricked in to believing the investment is legitimate when it is not.

4. Online Privacy Settings Unless you guard your personal information, it will be available to anyone with access to the internet, including fraudsters. Review and adjust the security and privacy settings on the social media websites your use to avoid unwanted access to your private information.

5. Do Your Homework You should research every investment opportunity before handing over your hard earned money. You should never rely on a “testimonial” or take the investment promoter’s word at face value, no matter how sincere or trustworthy he or she seems. You can check out the legitimacy of many investments through your state’s securities division or the SEC’s online database (https://investor.gov/). You can review the employment and complaint history of a stockbroker through the Financial Industry Regulatory Authority (FINRA)’s BrokerCheck database
(www.finra.org/Investors/ToolsCalculators/BrokerCheck) and investment advisors at the SEC’s Investment Adviser Public Disclosure database (www.adviserinfo.sec.gov).

A copy of the SEC’s Investor Alert: “Social Media and Investing – Avoiding Fraud” can be found at http://investor.gov/news-alerts/investor-alerts/investor-alert-social-media-investing-avoiding-fraud.

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