Emerging Investment Fraud, Scams and Threats of 2023

An investor alert recently issued by the North American Securities Administrators Association (NASSA) highlights the looming danger of investment fraud scams, which are now finding new avenues through digital channels like email, social media, and telephone calls. Here are some of the most common threats that investors might face this year and beyond.

Digital Asset Scams – Crypto Fraud

Digital asset scams have gained significant popularity among fraudsters due to the ease of using online communication to target potential victims efficiently. These scams often employ attractive imagery and professional videos to entice individuals into investing in supposed “lucrative financial instruments.” However, it’s essential to note that many of these sellers are not registered or licensed to sell securities.

These fraudulent operators falsely claim to eliminate all economic risks from their investments, which is simply not possible. According to a recent study conducted by Chainalysis, a firm specializing in cryptocurrency tracing and blockchain analysis, it was found that 1 in 4 new crypto tokens introduced last year turned out to be scams. Among these, pump-and-dump schemes were prominent, where the creators of new tokens artificially inflate the price, only to sell their entire holdings abruptly, causing the value to plummet and causing losses to innocent investors.

Pig Butchering Scheme (Affinity Fraud)

Another significant threat in 2023 is the pig butchering scheme, a form of affinity fraud identified by NASSA. These schemes exploit victims emotionally by building a relationship of trust before soliciting investments. Once the fraudsters drain the victims’ bank accounts, they disappear without a trace, leaving the victims with significant financial losses. This type of fraud often takes its name from the practice of fattening a pig before slaughter and has been increasingly associated with digital asset frauds.

A poignant example of this scheme involved a scammer who posed as a romantic interest on a dating app to deceive a woman into investing substantial sums of money into a seemingly legitimate cryptocurrency venture. Eventually, the woman invested almost $46,000 before realizing the deception, but by then, it was too late, as the scammer had vanished with her funds.

Social Media Investment Fraud Scams – Beware of Finfluencers

The third prevalent form of investment fraud in 2023 operates through social media platforms. Investment promoters are leveraging the vast audience on these platforms to target potential investors and their funds.

The rise of “finfluencers,” financial influencers, adds complexity to the situation. Often celebrities with large followings, finfluencers have the power to influence the financial decisions of others through endorsements or recommendations on social media. While not intentionally engaging in scams, their ties to the businesses offering the products or services can lead to potential conflicts of interest.

In a typical scenario, a finfluencer might enter into agreements with a company to promote its products across various social media channels like Instagram, Facebook, TikTok, and Twitter. Unfortunately, some finfluencers fail to disclose the compensations they receive from these companies to their followers, which can mislead and harm the trusting individuals who follow their advice.

Investors must stay vigilant and exercise caution when approached with investment opportunities through digital means, especially on social media. It is crucial to verify the authenticity and legitimacy of the parties involved before making any financial decisions to safeguard against falling victim to investment fraud scams.

So, what can you do? 

Well obviously, we recommend you reach out to your Financial Advisor for investment advice and not social media.

 If you are going to go the online route, at least be cautious of following Warning Signs.

1.Questionable Advice: While some financial content can offer valuable guidance on basic financial literacy, be wary of reckless advice that could lead to severe financial consequences. Advice like “Avoid Paying Your Debts” or “Use this HACK to Skip Your Mortgage Payment” might result in a damaged credit score, substantial financial losses, or even legal actions against you. If an opportunity seems too good, crazy, or risky to be true, it’s likely best to steer clear.

2.Verify Credentials: If a finfluencer claims to possess a financial certification or designation, verify its legitimacy by checking if it comes from an accredited organization and if the individual currently maintains good standing. Additionally, consult your local securities regulator to confirm whether the person is registered to provide investment advice and recommendations.

3.Demand Supporting Data: Some finfluencers gain followers by constantly touting “to the moon” stock picks or investment strategies. While a few of these recommendations may succeed, many others may fail or result in losses. Always approach these recommendations with skepticism and request data to back up the claims made by the finfluencer. If they only promote their “amazing” results without providing substantial evidence, it’s likely too good to be true. Remember, finfluencers create content for their own financial gain – if their strategies and picks truly yielded incredible profits, they wouldn’t need to invest so much time in social media content creation.

At the end of the day, at risk of sounding like a broken record here… please seek advice from a professional. Just because it’s on social media, it doesn’t mean it’s good advice or even true. 

Investment advice offered through OneAscent Financial Services, LLC, d/b/a Provident Oak Financial, LLC, a Registered Investment Adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training.