Investing 101: Don’t Fall Victim to Fraudulent Stock Promotions

Savage Villoch Law, PLLC
30
May

You know that stock investing comes with risks. Along with anticipated risks associated with the nature of stock trading, you also face risks associated with fraud. Some of the most widespread forms of stock fraud are carried out through fraudulent stock promotions.

fraudulent stock promotionsWhat Are Fraudulent Stock Promotions?

In fraudulent stock promotion scams, fraudsters hype a certain stock to generate investor buzz. Once a buy frenzy occurs, fraudsters will quickly sell off their shares, leaving investors to take the hit.

Most successful fraudulent stock promotions are carried out by those perceived as “insiders” in the investment world and the stocks they push represent no real business operations.

 

Beware of Penny Stock Fraud

Penny stocks are a huge target for scammers. They and other microcap stocks are especially susceptible to fraudulent stock promotions. Because of the low capital risk and high turnover of these small businesses represented by penny stocks, there is little public information readily available on many of them.

As with any kind of investment scam, fraudulent stock promotions rely on deception and investor ignorance. But you don’t have to fall victim to fraudulent stock promotions. All it takes are the right resources and education. With that, you can spot signs of fraudulent stock promotions and other types of investment fraud – and stop them before they happen.

Fraudulent Stock Promotions Come in Many Forms

While you should keep in mind that not all stock promotions are illegal, fraudsters take advantage of vulnerable networks to dupe investors. Stock promotions are often generated by paid promoters or some insider associated with the stock who stands to gain from a high-dollar stock sell-off.

Stock promotions, fraudulent or not, do regularly appear through legitimate channels. This makes it all the more difficult to spot the scams. They can come through a variety of media whether it be print, email or social media platforms. You may see stock promotions come through any of the following channels:

Email solicitations

You may get an email promoting a great investment opportunity, offering you the chance to act. It may even appear to come from a legitimate source… it isn’t. Scammers love using email as a way to fish for unwitting investors. They can hide behind a false name and easily edit an email to make it seem official. You just need to remember that know legitimate investment opportunity will come through email – let alone an unsolicited one.

Online ads or “pop-ups”

With recent data breaches and cybersecurity mishaps, we’re starting to see just how much of our time spent online is tracked and analyzed. Scammers are taking advantage of online data tracking to create target ads offering fraudulent stock promotions. You should never click a pop-up or online ad promoting a stock opportunity.

Social media posts

Social media can be a great resource for tracking your favorite thought leaders and investment circles and keeping up to date on current trends. It can also be a breeding ground for fraudulent stock promotions. We’ve all seen how easy it is for hackers to create a fake profile and populate it with automated followers and content. If you see a stock promotion or other investment opportunity in your social media feed, investigate it. Are the media links legitimate? Do you recognize this as the regular type of content from that poster?

Investment newsletters

These can be especially tricky, because a promoter may pay a publisher to run a stock promotion in their investment newsletter. If you subscribe to an investment newsletter or periodical, you probably have seen these stock promotions. Remember, what you are seeing are essentially paid advertisements – not unbiased stock recommendations. Scammers may also generate and distribute fake newsletters to try and dupe investors. If you sign up for an investment newsletter, make sure you’ve first looked into the background and standing of the newsletter and verified its legitimacy. You should never act on the advice of an investment newsletter you receive unsolicited.

Direct-mail campaigns

While social media and other online platforms may be the focus of hype and attention, you should never underestimate the power of good, old mail. Scammers have long relied on direct mail to defraud investors. With direct mail, fraudsters can generate convincing, high-quality “investment portfolios” promoting stocks and other investment opportunities.

Fraudulent Stock Promotion Red Flags

If you do happen to receive an investment offering or stock promotion in one of the above listed forms, there are some sure-fire signs you can look out for to tell if it’s fraudulent:

  • Look to see who’s promoting the stock; Find out if they have been suspended from promoting or trading on other stocks. You can view a list of all of the SEC’s trading suspensions here.
  • Check out the stock’s promotional history – have past announcements actually occurred? If a press release promotes something that will reflect well on the stock’s performance, make sure you follow up to see whether those things actually happen/have happened.
  • Research the company’s registered business history. If you see that the business name or type has changed frequently, it’s most likely a sign of fraud.

If you see any of these signs, take them as a major red flag. You should report fraudulent stock promotions when you see them. You can report potential or suspected securities fraud to the SEC directly: https://www.sec.gov/tcr

How a Stock Fraud Attorney Can Help You with an Investment-Loss

If you can spot fraudulent stock promotions or investment scams ahead of time, you’ll avoid a lot of trouble down the road. However, investment fraud isn’t always so clear. Fraudsters are getting more detailed with scams and emerging technologies make some securities and investment assets more vulnerable to fraud.

If you find that you or a loved one has become a victim of fraud, know that you do have options. A qualified stock fraud attorney can help you filing a claim, recover investment losses and even bring the fraudster to justice.

Our dedicated attorneys have been protecting Florida stock investors from fraud for over 20 years. Contact our team today if you believe you have been victimized by a stock fraud scam.