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Social media is rife with sketchy investment advice from influencers flaunting flashy cars and colossal mansions claiming that you—yes you—could also lead a life of luxury if you just listen to their advice (and buy their products, of course).
Would it surprise you to learn that some of these people are scammers?
What happened: The US Justice Department and Securities Exchange Commission (SEC) charged eight finance influencers with defrauding investors of US$114 million through “pump and dump” schemes.
- The influencers encouraged their followers on social media to sink money into penny stocks, artificially inflating their prices before quickly selling their shares to earn a tidy profit.
- The only issue was that’s very much illegal: “To their legions of followers [they] promoted themselves as trustworthy stock-picking gurus, “the SEC claimed, “In reality, they are seasoned stock manipulators.”
Why it matters: Pump and dumps are nothing new (The Wolf of Wall Street himself Jordan Belfort very famously did it), but this crew gave it a modern spin for the social media age, cloaking their schemes as advice on Discord, Twitter and through regular appearances on a popular podcast.
- In Canada, 36% of investors now use social media or discussion boards for investment advice, meaning they are increasingly vulnerable to scams like this.
- Canadians have lost $61.5 million to investment scams in the first 9 months of this year.
Bottom line: If an investment tip you read online seems too good to be true, it almost certainly is.