The Canadian Securities Administrators (CSA) has issued a warning about fraudulent “investment groups” proliferating on social media. These groups use platforms like Facebook and Instagram to lure unsuspecting investors with promises of high returns, only to leave them with significant losses.

Tactics Used by Scammers

CSA mentioned that these scams, commonly referred to as “pump and dump,” exploit social media to deceive potential investors. Scammers start by heavily promoting a stock they own shares in, artificially inflating its price. Once enough investors buy in at the elevated price, the scammers sell their shares, causing the stock price to plummet and leaving new investors with substantial losses.

One way the scam works is through private WhatsApp chats, where scammers promote their groups on social media and subsequently invite investors to encrypted group chats. Others use fake credentials, posing as registered professionals or claiming affiliation with legitimate companies or celebrities.

According to the Canadian watchdog, other fraudsters use a shifting target model. Initially, they might discuss well-known stocks but later push investors towards riskier, less familiar stocks, often listed abroad in markets like Hong Kong.

CSA has also determined that the unscrupulous individual could also use pressure tactics by aggressively persuading investors to commit large sums, including borrowing from friends and family.

CSA Cautions Investors

Following these findings, the regulator has urged users to safeguard against these scams by remaining cautious of unsolicited investment advice on social media. CSA has also urged users to conduct due diligence, including research on the background, qualifications, and disciplinary history of investment advisors using the CSA’s National Registration Search, is important.