FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Social media and the Internet in general have become important tools for investors. Investors may use social media to research particular stocks, look up background information on a broker-dealer or investment adviser, find guidance on investing strategies, receive up-to-date news, and discuss the markets with others.
While social media can provide many benefits for investors, it also presents opportunities for fraudsters. Through social media, fraudsters can spread false or misleading information about a stock to large numbers of people with minimum effort and at a relatively low cost. They can also conceal their true identities by acting anonymously or even impersonating credible sources of market information.
One way fraudsters may exploit social media is to engage in a market manipulation, such as spreading false and misleading information about a company to affect the stock’s share price. Wrongdoers may perpetuate stock rumors on social media, as well as on online bulletin boards and in Internet chat rooms.
The false or misleading rumors may be positive or negative. For example, in a “pump-and-dump” scheme, promoters “pump” up the stock price by spreading positive rumors that incite a buying frenzy and they quickly “dump” their own shares before the hype ends. Typically, after the promoters profit from their sales, the stock price drops and the remaining investors lose money. In other instances, fraudsters start negative rumors urging investors to sell their shares so that the stock price plummets and the fraudsters take advantage of buying shares at the artificially low price.
