Classic affinity fraud scheme updated to take advantage of popular internet communities and destinations.
INDIANAPOLIS (September 19, 2011) – As people increasingly turn to online social networking sites like Facebook, Twitter and LinkedIn to interact with one another, so have con artists who lurk in the virtual shadows with shady investment deals to pitch to unsuspecting investors, Indiana Secretary of State Charlie White said today.
The securities division of the Office of the Indiana Secretary of State is cautioning investors to make certain they know with whom they are doing business when considering investments pitched through “friends” on social networking sites.
“Just because someone has ‘friended’ you online does not mean that person is your friend when it comes to investing,” said Indiana Securities Commissioner Chris Naylor. “The person behind the profile may be deliberately mimicking your likes and interests to lure you into a scam.”
Naylor adds, “This is nothing we haven’t seen before. Scammers are just upgrading their pitches to keep up with the times.” Historically focused on traditional social networks, con artists’ “affinity fraud” schemes have been around for years. Targeting community service groups, professional associations or faith-based organizations, scammers infiltrate groups of individuals connected through common interests, hobbies, lifestyles, professions or faith to establish strong bonds through face-to-face contact and sharing of personal interests before launching their schemes.
The securities division has investigated criminal fraud allegations originating with scams peddled over popular websites before. The office’s Prosecution Assistance Unit helped Indiana State Police and the Johnson County Prosecutor bring charges against a woman using the popular online Craig’s List classifieds to solicit investments and used her investors’ credit histories to apply for loans and credit cards. Last summer, the unit helped Vanderburgh County authorities file charges against a Cincinnati man who coaxed a woman over the Match.com dating community to give him $10,000 with promises to turn it into $1 million in one year.
The rise in popularity of websites such as Facebook, Twitter, LinkedIn, eHarmony and other online social networks and communities has made it easier for con artists to quickly establish trust and credibility. Facebook alone boasts 750 million users averaging 130 “friends” apiece and spending over 700 billion minutes per month on the social network. “Crooks peddling scams increasingly are logging on to find investors and their money,” Indiana Investor Education Coordinator Melanie Woods said. She notes that according to the company’s website, Facebook users on average are connected to 80 community pages, groups and events – all of which are ripe for con artist abuse.
Woods travels the state on behalf of the Office of the Indiana Secretary of State’s Indiana Investment Watch program in part to educate groups on the perils of this and other types of affinity fraud. Online social networking sites enable scammers to gain access to potential victims through their online profiles, which may contain sensitive personal information such as their dates or places of birth, phone numbers, home addresses, religious and political views, employment histories, and even personal photographs.
“A con artist can take advantage of how easily people share background and personal information online by using this information to make a highly targeted pitch to ‘friends’ within that social group,” Woods said.
The securities division has issued an alert advising investors to watch for red flags common to online investment schemes, such as promises of high returns with no risk, operations based offshore and requests for payment through e-currency websites. The alert also offers tips on how to protect against fraud in social networking: protect your personal information; search the names of all persons and companies connected to the investment being offered; beware of the use of testimonials from “satisfied” investors; obtain a prospectus; don’t take the word of a salesperson; and contact the Office of the Indiana Secretary of State’s securities division to determine if the investment and the person recommending it are properly registered.
“Take time to check out the investment yourself, and remember: If it sounds too good to be true, it probably is,” White said.
The alert and additional information on how to protect yourself from investment fraud is available on the Secretary of State’s website at www.IndianaInvestmentWatch.com or by calling 1-800-223-8791.
Click here to download the free social networking PDF alert.