Investors lost millions of dollars between November 2023 and January 2024 to scam artists pretending to be financial professionals. According to the Financial Industry Regulatory Authority, there has been a significant increase in the number of scammers. Below are some red flags to watch for.
Scammer Tactics to Watch Out For
Be on the lookout for scammers who claim to be financial professionals affiliated with well-known investment firms.
The scheme, called the ‘ramp-and-dump’ scam, starts with the imposter often taking on the identity of a reputable financial professional making it easier for them to convince unknowing investors to join investment-related groups on social media channels. Once they earn their trust and engage with the investor, they persuade them to purchase investments in low-priced, low-volume stocks that are often listed in the U.S. or Hong Kong. The bad actor(s) then instructs the investor to open an account at a specified broker-dealer and provides information on what stocks to purchase, the amount of stocks to purchase, and what time the purchases should be made. Essentially, this demand falsely elevates the stock price which does eventually collapse, leaving investors with a loss. Making matters worse, additional loses can occur when the bad actor is confronted about the loss, and convinces the investor to transfer even more funds to help ‘remedy’ the situation.
How to Avoid Becoming Victim to a Scam
Be cautious of any unsolicited messages, social media promotions or invitations about investment groups and opportunities, especially those that seem too good to be true. Remember, if they are requesting personal identification or access to any of your accounts, do not provide it – this is a red flag. If the proclaimed financial professional is encouraging you to transfer money from other accounts with a promise to make it back, that’s another red flag. They may even go as far as asking the investor to take out loans or borrow from friends and family.
If you have any questions about the legitimacy of your financial professional, be sure to ask questions and do research to ensure they are not an imposter. Make sure to use a layered approach to identifying who you are dealing with. A quick internet search could prove if the business exists at all. Call the number listed on the internet search and not the call back number provided in the message. You could even get a second opinion from a friend, family member, or mentor who you trust who will be new to your situation and could have a fresh view of the situation.
Financial Advisor Magazine.