The Financial Industry Regulatory Authority says it’s seeing a “significant spike” in investor complaints about bad actors posing as registered investment advisors who have allegedly cost investors millions of dollars in losses.
Finra said that the complaints it has received describe bad actors who pose as RIAs and tout “stock investment groups” on Instagram and other social media channels. When an investor responds, the scam artists then lure investors to encrypted group chats on WhatsApp where they pitch investments.
“Since November, FINRA has received nearly a dozen investor complaints regarding this threat, alleging millions of dollars in total losses. And if history is a guide, it's likely that this is just the tip of the iceberg,” the self-regulatory organization said in a new Investor Alert.
The ruses often start out by promoting investments in well-known, actively traded stocks, but quickly move the conversation to investments in low-priced, low volume U.S. or Hong Kong-listed stocks, according to Finra.
“As with other broker imposter scams, the bad actors might falsely portray themselves as registered professionals, in some recent cases fraudulently claiming affiliation with well-known public figures and others in the investment industry—people who are not involved in the scheme,” Finra said.
The scammers “also often create fake personas by taking the name and other publicly available details about a registered investment professional with a spotless disciplinary history. They then misuse this information to establish legitimacy, unbeknownst to the actual investment professional being impersonated,” the regulator said.
The criminals “instruct investors to open an account at a specific broker-dealer, then guide them on which stocks and how much to purchase and at what times and prices, essentially leading the investors to unwittingly manipulate the price of the securities upwards. At some point, the investors become unable to sell, and the price of the securities inevitably crashes,” the regulator reported.
Then scammers apply pressure to convince investors to transfer in as much money as possible from investors’ other bank and brokerage accounts.
“When investors report losses, the scammers promise to ‘make the money back’ if the investors can transfer more funds into their accounts. One victim reported that the scammers are requesting that investors borrow money from friends and family in order to make back the money that was lost,” Finra said.
To avoid becoming a victim of these or other types of what Finra calls ramp-and-dump scams, investors should be particularly wary of any unsolicited messages or social media promotions about investment opportunities, Finra warned.
Investors should also always research investment professionals using Finra’s BrokerCheck to see if the promoter is indeed a registered investment professional, Finra said.