Investment fraud on social media is on the rise, preying on people across demographics, from seniors to Gen Z, who are vulnerable to promises of quick riches through risky ventures like cryptocurrency. A growing sense of urgency surrounds this issue, with experts warning that too many people are losing money to scammers exploiting social media’s vast reach and lack of regulation.
According to the latest annual report from the Canadian Anti-Fraud Centre (CAFC), investment fraud losses increased by nearly 40% in 2022, totaling a staggering $530.4 million. However, this figure is likely just the tip of the iceberg, as the CAFC estimates it receives reports of only 5% to 10% of all fraud cases involving Canadian victims.
A Perfect Storm of Vulnerability
The COVID-19 pandemic played a significant role in this surge. During lockdowns, many people turned to investing as a pastime, riding the wave of a bull market that gave them a false sense of financial security. This, combined with economic pressures and the lure of quick, easy gains, has made individuals more susceptible to fraudsters.
“Some people feel the life they want to live is unaffordable, which makes them receptive to get-rich-quick ideas,” notes Rob Carrick in his latest opinion column. Social media, he adds, has amplified the problem by allowing fraudsters to reach a broader audience while micro-targeting vulnerable groups with tailored scams.
How Scammers Exploit Social Media
Social media platforms have become a playground for fraudsters. They mine information users share publicly, piecing together personal details to craft believable narratives that draw potential victims in. These scams range from promising exclusive investment opportunities to impersonating public figures endorsing fake schemes.
A recent example involved a deepfake video of Canadian Finance Minister Chrystia Freeland, in which she appeared to promote an AI-driven investment platform that supposedly allowed over 100,000 people to quit their jobs. This fraudulent tactic is becoming more prevalent with the rise of artificial intelligence, allowing scammers to create convincing fake videos of celebrities and public figures.
“Artificial intelligence is giving criminals yet another weapon,” Carrick warns. “It’s now possible to fake videos in which public figures or celebrities appear to endorse various schemes.”
Do-It-Yourself Investors at Risk
The trend of investors moving away from financial advisers towards self-directed investment strategies has added another layer of risk. Without the guidance of regulated professionals, these DIY investors are more exposed to scams circulating in unregulated chatrooms and social media channels.
Securities regulators are particularly concerned about this shift. “Something worrying securities regulators is that more investors are becoming do-it-yourselfers instead of using investment advisers,” Carrick points out. With fewer safeguards in place, these investors are more vulnerable to falling prey to fraudulent schemes.
Spotting the Red Flags
While social media offers valuable resources for financial education, it’s also a breeding ground for fraud. Carrick advises a healthy dose of skepticism when evaluating any financial advice or investment opportunity found online. “The overriding question to ask of any social media post on investing or finance is this: What’s in it for the person sharing this information?”
He categorizes online financial influencers into three main groups: those offering useful, unpaid advice; those promoting paid products, which may be informative but are ultimately advertisements; and those actively trying to exploit people’s desire for financial success with bogus strategies and false promises of outsize returns.
At the heart of many investment scams is the promise of getting rich quickly. It’s an age-old tactic, but it remains one of the most effective forms of fraud. “Getting-rich-quick might be the oldest and most enduring form of fraud,” Carrick notes. Whether through fear-based tactics or too-good-to-be-true investment opportunities, scammers continue to exploit this vulnerability.
Be Skeptical, Stay Safe
Fraudsters are indeed getting rich on social media—but it’s their victims who pay the price. As Carrick concludes, adopting a skeptical mindset when approaching financial opportunities online is essential. “When you come across a pitch for big investment returns or special opportunities, channel that same skepticism.”
The rise in social media fraud is a sobering reminder that while technology can offer new ways to invest, it also presents new dangers. By staying informed and maintaining a healthy skepticism, investors can protect themselves from becoming the next victim in this growing wave of fraud.
