TDCI: Use Caution When Investing Through a Social Network

Wednesday, November 15, 2017 | 10:13am

NASHVILLE – Social networking in the Internet age allows people to connect to one another easier than ever before. However, as more investment promoters turn to social networking platforms such as Facebook, Twitter, LinkedIn, and eHarmony to find potential investors, consumers must take care to avoid online investment scams that could compromise personal and financial information.

As part of raising awareness of fraud during International Fraud Awareness Week (Nov. 12-18, 2017), the Tennessee Department of Commerce & Insurance’s (TDCI) Securities Division warns Tennesseans that con artists can use social media to easily fleece unsuspecting victims.

“While social networking helps connect people with others who share similar interests or views, con artists can infiltrate these social networks looking for victims,” said TDCI Assistant Commissioner for Securities Frank Borger-Gilligan. “We remind Tennesseans that it’s important to always thoroughly scrutinize and research any investment opportunity or offer.”

In online social networks, a con artist can establish trust and credibility more quickly than face-to-face networking. The scammer has immediate access to potential victims through their online profiles and can take advantage of how easily people share background and personal information online and use it to make a skillful and highly targeted pitch. The scam can spread rapidly through a social network as the con artist gains access to the friends and colleagues of the initial target.

What are the red flags of an online investment scam?

  • Promises of high returns with no risk. Many online scams promise unreasonably high short-term profits. Guarantees of returns around 2 percent a day, 14 percent a week or 40 percent a month are too good to be true. Remember that risk and reward go hand-in-hand.
  • Offshore operations. Many scams are headquartered offshore, making it more difficult for regulators to shut down the scam and recover investors' funds.
  • E-Currency sites. If you have to open an e-currency account to transfer money, use caution. These sites may not be regulated, and the con artists use them to cover up the money trail.                      
  • Recruit your friends. Most cons will offer bonuses if you recruit your friends into the scheme.
  • Professional websites with little to no information. These days anyone can put up a website.                                                                             
  • Scam sites may look professional, but they offer little to no information about the company's
    management, location or details about the investment.
  • No written information. Online scam promoters often fail to provide a prospectus or other form of written information detailing the risks of the investment and procedures to get your money out.

How can I protect myself from fraud in social networking?

  • Contact the Tennessee Securities Division before investing your money. We’re here to help with inquiries concerning securities broker-dealers, agents, investment advisers, investment adviser representatives, financial planners, registration status of securities or debt management programs, to report suspected fraud or to obtain consumer information.
  • Protect your personal information. Many sites will allow you to choose how much personal information you want to make publicly accessible, and how much you want to keep private. Adjust privacy and security settings accordingly, and think twice before posting personal information online.
  • Search the names of all persons and companies connected to the investment being offered. The Internet offers anonymity and scam artists take advantage of this. Do a search for the name of the person offering you the investment and the companies involved in the investment. If there are few results, or their name doesn't appear anywhere outside of the one investment program they're offering you, that's a red flag that they may be using multiple aliases, or hiding behind a fake identity.
  • Beware of the use of names or testimonials from other group members. Scam artists frequently pay out high returns to early investors using money from later arrivals. This type of scam is a Ponzi scheme. Fraud aimed at groups of people who share similar interests is called affinity fraud.
  • Obtain a prospectus. Ask for written documentation that details the risks of the investment and procedures to get your money out.
  • Do not take the word of a salesperson. Don't feel pressured to" act now." Take time to check out the investment yourself, and remember the old adage: "If it sounds too good to be true, it probably is."

For more investor education resources or to schedule an education outreach event for your group/club, visit the TDCI Securities Division at  or call 615-741-2947.