Pro Tip: Don’t Get Stock Tips from Social Media - Twitter, Facebook, Others Ripe for Hoaxes
The pump and dump trick is popular with unscrupulous short sellers. They start a Twitter account that appears to come from a well-known pro. They then make statements that are intended to move the market in their favor. And because Twitter has become a popular tool among short sellers and other traders who are hungry for breaking industry info, the scam sometimes works.
The FBI and SEC have been targeting scammers who use social media, but the risk is still huge for traders who use Twitter as a source: the scammer may be caught and brought to justice eventually, but it’s long after the offending tweet causes the market to shift. Facebook and LinkedIn are also getting attention from government agencies. In 2012, a LinkedIn user allegedly used the social network to promote fake securities.
So what’s a short seller to do? Make sure you know who’s behind that Twitter handle, for one thing. And keep an eye out for analytics firms, who are quick to spot scams and alert the public.