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SEC Issues an Investor Alert on Social Media and Investing (Part I)

On Behalf of | Mar 3, 2016 | Securities Laws, Uncategorized

On November 5, 2015, the Securities and Exchange Commission (“SEC”) issued an investor alert to warn investors about fraudsters who attempt to manipulate share prices through social media.[1]  For a full text of the investor alert, click here.  With the prevalence of social media and their increasing usage in market research, this seems to be a particularly appropriate topic for an investor alert.

In the investor alert, the SEC warned that, while social media can provide many benefits for investors, such as stock research and up-to-date news, it also presents opportunities for fraudsters to spread false or misleading information about a stock to large numbers of people with minimum effort and at a relatively low cost.  The false or misleading information about stock may be positive or negative.  For example, the SEC said, “pump-and-dump” schemes involve the touting of a company’s stock (typically small, so-called “microcap” companies) through false and misleading statements to the marketplace by persons who often claim to have “inside” information about an impending development and who stand to gain by selling their shares after the price is “pumped.”[2]  Or, the SEC said, fraudsters start negative rumors and urge investors to sell their shares, and when the stock price falls, they take advantage by buying shares at the artificially low price.

In the investor alert, the SEC cautioned investors to become aware of fraudsters who conceal their true identities by acting anonymously or even impersonating credible sources of market information, e.g., setting up an account name, profile, or handle designed to mimic a particular company or securities research firm.  The SEC suggests identifying the underlying source by, for example, looking for slight variations or typos in the account name, profile, email address, screen name, or handle, and verifying their authenticity by, for example, checking the company’s SEC filings.  The SEC also suggests watching out for red flags such as limited history of posts, pressure to buy or sell immediately so as not to “miss out” on hot stock, unsolicited investment information, or unlicensed sellers.

This post was part of a multi-part series on SEC’s investor alert on social media and investing.  You can find the other posts by searching our blogs at  In our next post, we will discuss SEC v. Craig, a recent SEC enforcement action involving false tweets that caused sharp drops in stock prices.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

[1] SEC, Updated Investor Alert: Social Media and Investing – Stock Rumors (Nov. 5, 2015),  Unless otherwise noted, all references to and discussions about the investor alert are from this source.

[2] SEC, “Pump-and Dumps” and Market Manipulations,