The Web isn’t difficult to navigate if you bring along some common sense and a healthy dose of skepticism, but those traits are sometimes in short supply among stock traders. Lately, would-be moguls are falling victim to scammers who are trying to influence the market with social media accounts that are designed to look like they belong to top industry players.
News flows fast on Twitter, and it's easy to get sucked into the excitement generated by a tweet that seems to be from a legitimate source - which is exactly why you need to be on guard when using Twitter (or any source, for that matter).
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.