It would be nice to think that if you’re reading this column, you’re too smart to be sucked in by an investment fraud on social media.
But that would be naive. Fraud has been around as long as money, but social media has done for it what the printing press and internet did for mass communication.
Investing fraud on social media received a lot of attention at a meeting in Vancouver last week of a group representing North American securities regulators. In a panel discussion that included me, there was a sense of urgency that I want to share with you. Too many people are being preyed upon and losing money.
The most recent annual report from federal Canadian Anti-Fraud Centre says losses jumped close to 40 per cent in 2022 from the previous year to $530.4-million. But that’s just a taste of what’s being lost because the CAFC says it hears about just 5 per cent to 10 per cent of all fraud involving Canadian victims.
The surge in fraud results isn’t social media alone. Some people feel the life they want to live is unaffordable, which makes them receptive to get-rich-quick ideas. Meanwhile, technology has given virtually everyone quick, cheap access to the stock market, as well as to newer assets like crypto currency.
During the pandemic, investing became a pastime for many that fed off strong investment gains. In a bull market, people feel empowered as investors are more open to risks they might otherwise avoid.
Financial fraud affects all demographics, the CAFC says. Seniors are vulnerable, but so are Gen Zs who are open to the idea of a big score through crypto or something similarly risky.
Social media enables fraud by providing a platform to broadcast to a wide audience, while also micro-targeting groups and individuals. When you put yourself out there on social media, fraudsters pick up crumbs of information that they use to feign an interest in you. From there, they can build storylines to later be exploited as a way to take your money.
Something worrying securities regulators is that more investors are becoming do-it-yourselfers instead of using investment advisers. Chatrooms and social media channels cannot be regulated the same way as advisers and the traditional investing industry, which is to say anyone can make a claim with impunity.
Artificial intelligence is giving criminals yet another weapon. It’s now possible to fake videos in which public figures or celebrities appear to endorse various schemes. One recent fake video featured federal Finance Minister Chrystia Freeland talking about an opportunity to make money on an AI-connected investing platform that has allowed more than 100,000 people to quit their jobs.
The overriding question to ask of any social media post on investing or finance is this: What’s in it for the person sharing this information? Knowing the answer can help guide you in deciding how much trust to place in someone.
At the helpful, or at least benign, end of the spectrum are financial influencers who build their brand with useful thoughts and reflections on topics such as budgeting or finding the right bank account. From there, we move on to finfluencers who talk up products they are paid to promote. Sponsored posts can be informative, but ultimately they’re commercials.
Next, we have the people on social media who go after your money under the guise of trying to help you be a successful investor or looping you into a supposedly unique opportunity for outsize returns. Some of these people sell strategies or systems that are basically useless. Others are criminals working cons designed to exploit our hunger to look and feel good about our finances.
There are also fear-based frauds that work off the idea our accounts have been compromised and the only way to fix the problem is to share a password or other personal information. But getting-rich-quick might be the oldest and most enduring form of fraud.
We are all skeptics about certain things – it could be the government, politicians, big corporations, AI, the Toronto Maple Leafs or a dozen other things. When you come across a pitch for big investment returns or special opportunities, channel that same skepticism.
There are people getting rich on social media – the criminals.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.