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SFC warns about social media scams

Ramp and dump scams account for around 20% of the market manipulation cases currently under investigation by the SFC.

Hong Kong’s Securities and Futures Commission (SFC) launched a Facebook page yesterday with a campaign to warn the public about the increasing use of social media platforms to defraud investors, according to a statement from the regulator.

These social media platforms include Facebook, WeChat, Whatsapp, Telegram and even online dating platform, Tinder, the SFC said on a Facebook post.

Investors are urged to be wary when offered “inside information” or investment tips online, particularly when strangers on social media promote small-cap or less liquid stocks. These scams are often part of “ramp and dump” schemes which can result in the collapse of a listed company’s share price.

A ramp and dump scam is a form of stock market manipulation where fraudsters use different means to ramp up the share price of a listed company and then “dump” the shares to other investors at an artificially high price. These scams normally take place in three stages: cornering and ramping, offloading and dumping, according to the regulator’s Enforcement Reporter report.

An increasing number of retail investors have fallen victim to ramp and dump scams conducted through popular social media platforms. These scams account for about 20% of the market manipulation cases currently under investigation by the SFC, the report noted.

Source: SFC

Gaining trust

To convince investors to buy shares, the fraudsters or their accomplices may patiently work to establish a relationship with them on social media by making frequent contact on the pretext of friendship or romance, according to the Enforcement report.

Once a relationship is established, the fraudsters may claim that they have inside information about a listed company and use the promise of guaranteed profits to induce the investors to buy the shares at an inflated price.

Source: SFC

In some cases, scammers have also impersonated well-known investment advisors and popular market commentators to draw victims into the scheme. Some fraudsters set up investment groups on social media platforms and claim to offer investment tips or inside information to induce investors to join. The fraudsters may identify themselves as “investment masters” or “investment teachers”.

Source: SFC

“Cracking down on organised investment fraud on online platforms is a high priority,” Ashley Alder, SFC’s CEO said on the website page.

“To avoid falling victim to these scams, the public must be vigilant when offered unsolicited investment advice or tips on social media,” he added.

Part of the Mark Allen Group.