SEC Issues Investor Alert on Social Media and Investing: Stock Rumors

The SEC's Office of Investor Education and Advocacy issued an Investor Alert to warn investors about fraudsters who may attempt to manipulate share prices by using social media to spread false or misleading information about stocks.

According to the Investor Alert, fraudsters can spread both positive and negative rumors about stocks through social media. In a "pump-and-dump" scheme, promoters "pump" up the stock price by spreading positive rumors to incite a buying frenzy, and then quickly "dump" their own shares before the hype ends. In other instances, fraudsters start negative rumors urging investors to sell their shares so that the stock price plummets, and the fraudster can take advantage of buying shares at an artificially low price.

Additionally, the Investor Alert points out that fraudsters may use social media to impersonate an established source of market information by, for example, setting up an account name or profile designed to mimic a particular company or securities research firm.

The Investor Alert provides a list of red flags for investors to be aware of when investing, including accounts that have a limited history of posts, post messages urging investors to buy a hot stock, or provide unsolicited investment information or offers.

See: SEC Investor Alert.