SEC Investor Advocate Warns of Growing Fraud and On-line Misinformation

In a Report on Objectives for Fiscal Year 2025, the SEC Investor Advocate ("OIAD") and the Ombudsman ("Ombuds") warned of an increase in financial fraud driven by technological advancements and social media. The OIAD and Ombuds highlighted the need for legal assistance for investors, the decline in investor advocacy clinics and the critical role of regulatory oversight.

The OIAD said that in FY2025, it will focus on (i) broker and adviser conduct (e.g., on Reg BI, discount brokerage through digital platforms, Reg Best Execution, et. al.); (ii) the "ever-expanding size and significance of private markets;" and the (iii) "evergreen topic" of innovation and disclosure to help investors to be better aware of risks and challenges of emerging complex products. The OIAD warned "that fraud is now possible at a scale and complexity not previously practical," and that the Office would "continue to closely monitor new fraud models and their impact on investors." The OIAD said it will prioritize SEC investor engagement and investor research, and that it plans to conduct more virtual events to expand accessibility for investors from a greater diversity of locations and communities.

The Ombuds, appointed by the Investor Advocate to be the primary liaison between the Commission and retail investors, said that "social media drives much of the fraud reported to our office," and that "over time, the proliferation of social media and internet forums has made market information more decentralized and less reliable." Going forward, the Ombuds said the Office will (i) maintain its focus on issues relating to retail investor arbitration, (ii) continue to represent the interests of retail investors in our public engagements, and (iii) monitor trends related to the "nature of online fraud allegations, and advocate for Commission involvement" to combat it. Noting a 17 percent increase in alleged securities fraud between FY2022 and 2023, the Ombuds emphasized: "[w]e must consider how to quell the rising tide of online misinformation."