The SEC’s Office of Investor Education and Assistance is warning investors that fraudsters may use investment-related group chats, including on commonly used social media platforms, to lure investors into scams. Investors should never rely solely on information from group chats in making investment decisions. Be wary of any group chat where you receive investment advice from someone you don’t know – this is often how investment scams begin.
Maybe you joined a group chat about investing because someone invited you, or perhaps you were added to it unexpectedly after clicking on an ad on social media. You should know that fraudsters use group chats to target investors in different types of scams.
Fraudsters May Impersonate a Well-known Financial Expert
Fraudsters may create a fake investment-related group chat that claims to be led by a well-known financial guru, esteemed professor, successful CEO, or other expert. The purported leader of the group chat may be a well-known person who is being impersonated, sometimes using artificial intelligence (AI) such as “deepfake” videos. Or the leader may be a completely made-up person.
The leader or another member of the group chat may promote an AI trading node or trading algorithm that generates stock picks, or may promote other investments. The leader may advise you to set up an account on a website or on a mobile app. Just because an app is available on a well-known app store doesn’t mean that the app itself, or any trading activity you see within it, are legitimate.
Your account may show “profits.” But when you try to withdraw the “profits,” fraudsters may demand a fee, tax, or deposit to release the funds. Or fraudsters may falsely tell you that the SEC or another government agency has frozen (or is about to freeze) your account and direct you to pay money to unfreeze the account (or withdraw your funds before the freeze). After you pay the purported fee, tax, or deposit, the fraudsters likely will stop answering your messages and cut off contact. You will not get the purported profits or ANY of your money back.
SEC Enforcement Action. In SEC v. Morocoin, the SEC charged three purported trading platforms and four supposed investment “clubs” for defrauding investors after soliciting them through social media ads (including ads featuring deepfake videos of prominent financial professionals) to join group chats on WhatsApp. Each investment “club” allegedly had: (1) a “professor” who posted updates in the group chat on macroeconomic conditions or commentary on stocks, and (2) an “assistant” who handled communications with members. According to the SEC’s complaint, the professors and assistants circulated trade recommendations in the group chats that they claimed were based on AI-generated “signals.” The SEC alleges that members posted screenshots in the group chats of purportedly successful trades and praised the signals. The defendants allegedly directed investors in the group chats to open accounts on crypto asset trading platforms falsely boasting licenses from regulators including the SEC. According to the SEC’s complaint, the defendants tricked investors into investing in phony Security Token Offerings that the defendants falsely promoted as zero-risk, high-profit opportunities by legitimate businesses. The defendants then allegedly charged investors bogus fees to withdraw their money, falsely telling investors that their accounts were about to be frozen due to SEC investigations.
Fraudsters May Impersonate Investment Professionals
Fraudsters may impersonate registered brokers or investment advisers in group chats. They may make it appear that a group chat is associated with a particular firm and impersonate individuals at the firm.
Verify that you are communicating with an investment professional and not an imposter. For example, contact the professional using a phone number or website listed in the firm’s Client Relationship Summary (Form CRS). To ensure you are looking at a genuine copy of the firm’s Form CRS, follow these steps:
- In the “Check Out Your INVESTMENT PROFESSIONAL” search box on Investor.gov, select “Firm” from the drop-down options and type in the name of the firm.
- In the search results, click on the relevant firm and then click on “Get Details.”
- Click on “Relationship Summary” or “Part 3 Relationship Summary.”
To learn more, visit our Impersonation Schemes webpage.
Fraudsters May Conduct Stock Tip Scams
Fraudsters sometimes exploit group chats to conduct pump and dump schemes -- pumping up the share price of a public company’s stock by making false and misleading statements to create a buying frenzy, and then selling shares at investors’ expense. Fraudsters may recommend stocks and claim that buying shares will result in astronomical returns. To learn more, read our stock tip scams Investor Alert.
Look out for suspect payment methods. Be highly suspicious if you are instructed to pay for an investment using cash, especially if someone comes to your home to pick up cash. Do not invest with anyone who tells you to lie to your bank about why you are withdrawing money. Additionally, be wary if you are required to pay for an investment in one of the following ways:
- Wiring money, or writing a check, to an individual;
- Sending money to a different company than one you thought you were investing with;
- Sending payment to a suspicious address (for example, a P.O. Box or virtual address);
- Noting that the payment is for a purpose unrelated to the investment (for example, luxury watches, goods, or furniture);
- Sending crypto assets to an unknown wallet or individual.
Fraudsters often promise high guaranteed investment returns, but there is no such thing. Every investment involves risk, and the potential for high returns usually comes with high risk. The promise of high returns with little or no risk is a classic sign of investment fraud. Don’t click on ads promising high investment returns. Thoroughly research any investment pitched in a group chat and report possible securities fraud to the SEC.
Additional Resources
Relationship Investment Scams ‒ Protect Yourself | Investor.gov
Visit Investor.gov, the SEC’s website for individual investors.
Receive Investor Alerts and Bulletins from OIEA by email or RSS feed.
The Office of Investor Education and Assistance has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.
