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Home Crypto

SEC Sends Warning to Investors of Scammers Exploiting FOMO on Social Media Platforms

BlockNews Team by BlockNews Team
September 8, 2022
in Crypto, Guides, Politics
Reading Time: 5 mins read
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Fraudsters are increasingly preying on FOMO to lure investors into various crypto scams, resulting in hundreds of thousands of dollars in losses. The SEC responded by issuing investor alerts warning the public of the dangers of investing in potentially fraudulent investment schemes.

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The Increase in FOMO Scams

FOMO is simple. There are over 9,000 different cryptocurrencies, according to CoinMarketCap. Because most of these coins are useless or are scams, the investors who purchased the coins due to FOMO are often left with a coin that has no value, while the fraudsters reap profits from the investments.

The way fraudsters work with FOMO is also simple. They capitalize on typical investor sentiment and the fear of missing out on a potentially profitable venture. The simplest way to perpetrate this scheme is for the fraudster to “post unreal historical returns on their websites showing high investment returns.”

As per blockchain analytics firm Chainalysis, “illicit crypto volumes are down this year, with total scam revenue sitting at $1.6 billion, 65% lower than where it was through the end of July last year.” The firm suggests that these “numbers suggest fewer people than ever are falling for cryptocurrency scams.” Chainalysis continued,

Total scam revenue for 2022 currently sits at $1.6 billion, 65% lower than it was through the end of July in 2021, and this decline appears linked to declining prices across different currencies.

The SEC’s Investor Alert on Social Media and Investment Fraud

On August 29, the SEC published an Investor Alert describing these social media and investment frauds in more detail. In the Alert, the SEC encourages the public to be “skeptical and never make investment decisions based solely on information from social media platforms or apps.” 

After all, social media makes the work of fraudsters and criminals much more accessible. It allows fraudsters and criminals to contact multiple people quickly, cheaply, and without much skill—all while the perpetrator is at their home, which may even be outside the territory of the United States. 

Further, many ads look credible and legitimate, adding to the danger of relying on social media to market investment opportunities. The Alert also warns that fraudsters often use fake profiles and impersonate legitimate sources. 

And because social media accounts are invoked, tracking the fraudster is sometimes next to impossible. 

Types of Investor Scams Preying on FOMO

The SEC in its Alert, then outlines some of the scams that the public should be on the lookout for:

1. Impersonation Schemes:

Fraudsters often impersonate brokers or advisers. Examples of impersonation techniques may involve one or more of the following forms: cold calling, fake profiles, “spoofed” websites, and misrepresented/falsified documents. Even SEC staff members can be impersonated, so the SEC tells everyone to use SEC verified accounts before dealing with the SEC via social media.

2. “Crypto” Investment Scams:

Another popular scam involves crypto investment via social media. Promises of high return with little to no risk are “classic warning signs of fraud,” along with fake testimonials and unlicensed sellers.

3. Romance Scams:

These scams typically involve a fraudster establishing a relationship with the victim, usually through a dating app or other social media site. The SEC warns, “[d]o not invest money based on advice from someone you have solely met online or through an app.” The FBI has also issued a Public Service Announcement on fraud involving romance scams. The FBI’s announcement states that the first half of 2021 alone resulted in over 1,800 complaints and totaled about $133,400,000 in losses due to online romance scams.

4. Market Manipulation Schemes:

These scams generally entail manipulating the price of a company’s stock by spreading rumors on social media, which lead to the fraudsters profiting at the expense of the investors. Other schemes under this category include pump and dump, scalping, and touting.

5. Community-Based Investment Fraud:

This type of fraud—affinity fraud, where fraudsters target members of small groups with common traits and similarities (e.g., ethnicity, gender, nationality, age, etc.)—works by exploiting the trust inherent within groups. 

Conclusion 

The increase in FOMO-related scams has caught the eye of federal agencies. Notably, the SEC continues to issue investor alerts to warn the public of the various types of crypto scams and advise them on how to be proactive and guard against such risks.

Tags: BlockchaincryptoWeb3
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