Despite ongoing efforts to warn investors about scams promoted through social media, government regulators continue to bust bogus operations promising big returns.
Last week, the Securities and Exchange Commission brought charges against two different alleged scams promising big profits. Both used social media to lure in new investors.
Fraud charges were filed against a Honolulu woman who posed as a successful hedge fund investor and solicited clients using Twitter and Facebook.
According to the official complaint, Keiko Kawamura promoted her website on social media outlets and claimed her personal IRA account was up almost 800 percent in 2012.
“In fact, as Kawamura knew at the time she created her website, she lost all of her money in her personal IRA brokerage account over a period of about 12 months,” said the complaint.
As is the case with most scams, she would use clients’ money -- approximately $200,000 -- on personal expenses including trips to Miami and London.
“Karamura used social media to ensnare investors and raise money to support her lifestyle. Investors should beware of fraudsters who use social media to hide behind anonymity and reach many investors with little to no cost or effort,” said Michele Wein Layne of the SEC’s Los Angeles office.
In another case, the commission announced fraud charges and froze the assets of a Florida-based Ponzi scheme targeting investors primarily through the use of YouTube videos.
The scheme solicited investments in virtual concierge machines with the promise they would generate “guaranteed returns of 300 to 500 percent in four years.”
The VCMs were ATM-like devices purportedly placed in hotels, airports and stadiums. Businesses would pay to have their products sold and promoted through the machines.
The operators touted the VCMs as a “revolutionary enterprise and fail-safe investment based on a stream of advertising revenue that would generate the guaranteed returns paid to investors. However, the advertising revenue was virtually nonexistent and investors aren’t enjoying the riches touted on YouTube,” said Eric Bustillo of the SEC’s Miami office.
The commission alleges the two operators of the program diverted $2 million to personal expenses at restaurants, merchandising stores, and a tanning salon as well as paying other credit card bills. The SEC also identified more than 100 cash withdrawals from business accounts for more than $4.8 million.
These two complaints are just the latest in a series of social media supported scams identified by the SEC and other regulators. Last year an investor alert, Social Media and Investing – Avoiding Fraud, was issued to warn people to the potential dangers.
“Investment fraud criminals look for victims on social media sites, chat rooms and bulletin boards. If you see a new post on your wall, a tweet mentioning you, a direct message, an email, or any other unsolicited communication regarding a so-called investment opportunity, you should exercise extreme caution,” warns the investor alert.
While regulators have had limited success in busting some of the frauds, the odds are slim they will discourage others from proceeding.
“Social media, and the Internet generally, offer a number of attributes criminals may find attractive. It is easy to create a site, account, email, direct message, or webpage that looks and feels legitimate -- and that feeling of legitimacy gives criminals a better chance to convince you to send your money,” warns the SEC report.
Bottom line: If you become the victim of a fraud created through social media, there is little chance of recovering your losses. Even more than other scams, if something online sounds too good to be true, it probably is.