SEC issues investor alerts highlighting the perils of social media

The New York Times’ Ben Protess reports that the S.E.C. issued today a pair of investment alerts highlighting the perils of investing over social media.

The alerts noted that investment advisers are increasingly approaching and recruiting clients using LinkedIn and other social media outlets like Twitter. In turn, the S.E.C. recommended that investment firms tailor their compliance programs to the social media boom. The Financial Industry Regulatory Authority has issued similar guidance for brokerage firms it oversees.

Per Robert Kaplan, co-head of the asset management unit of the S.E.C’s enforcement division:

Fraudsters are quick to adapt to new technologies to exploit them for unlawful purposes. Social media is no exception, and today’s enforcement action reflects our determination to pursue fraudulent activity on new and evolving platforms.

The alerts follow the S.E.C.’s charging a financial advisor with using LinkedIn to promote bogus investments. Anthony Fields is alleged to have offered more than $500 billion in “fictitious securities through various forms of social media.” The securities promoted included fake “bank guarantees” and “medium-term notes” tied to JPMorgan Chase and UBS, among other large banks.

Fortunately the common sense of Internet users prevailed. Although a few people responded, no one bought the securities.

I expect this to be the first of many news stories highlighting the dangers of social media for investors. Though it could be the mail or the phone just as well as social media, the phone and the mail don’t make for near the flashy story headline that social media does today.

Social media is no more dangerous when it comes to securities fraud than the risk of ponzi schemes propagated by Bernie Madoff and the like. There will always be hucksters and there will always be gullible people looking to get rich quick.

No reason to fear sinister financial advisors stalking you on social media and social networks unless you’re awfully naive.

Here’s a copy of the SEC press release charging Fields.