3 Key Risks Facing Investors in 2023

The North American Securities Administrators Association (NASAA), an esteemed organization dedicated to safeguarding investor interests, has recently unveiled its compilation of the three primary risks that investors are likely to encounter in 2023. In this analysis, we aim to shed light on these threats and offer recommendations on how to shield yourself from their potential impact.

1. Digital Asset Fraud

With the growing adoption of digital assets and cryptocurrencies among investors, a new breed of financial fraud has emerged. Digital asset fraud involves perpetrators who manipulate unsuspecting victims into opening accounts with digital asset exchanges, purchasing digital assets, and subsequently transferring the funds to the fraudster’s digital wallet, only to vanish with the assets. The decentralized nature of digital assets, coupled with the anonymity offered by blockchain technology, makes this type of fraud particularly enticing for scammers.

Outlined below are several commonly employed strategies utilized by scammers to perpetrate digital asset fraud:

• • Fake trading platforms – It is crucial to exercise caution when dealing with platforms that appear legitimate but are, in fact, designed to deceive investors and abscond with their funds. Beware of platforms that exclusively accept digital assets for investment purposes. It is advisable to only engage with reputable platforms and registered advisers. Digital asset trading platforms must adhere to regulatory requirements and register as money service businesses with the Financial Crimes Enforcement Network (FinCEN) and, in some cases, state regulators as well.

• • Promises of “guaranteed” high returns – Fraudsters frequently employ aggressive marketing strategies to lure investors by making extravagant promises of high returns and low risk. They often exert pressure on individuals to make swift investment decisions. Exploiting emotions such as the fear of missing out or concerns about market volatility, they capitalize on psychological vulnerabilities. Once investors deposit their digital assets, these scammers vanish, leaving victims in a state of financial loss and distress. It is crucial to remain vigilant and exercise due diligence when approached with such investment opportunities.

• • Confusing sales pitches – Fraudulent individuals employ intricate terminology or assert possession of classified technological advancements, thereby rendering their sales presentations perplexing. Subsequently, they offer lofty returns as an enticement. Be cautious of spelling and grammatical mistakes present in these pitches, as they further contribute to the overall confusion.

• Unsolicited offers – Exercise caution if you receive unsolicited communication from unfamiliar individuals or individuals with whom you have only interacted online regarding an investment opportunity. Be aware that fraudsters resort to fabricating counterfeit social media profiles or commandeering genuine user profiles as a means to persuade victims into investing with them. Once an investor transfers digital assets, the fraudulent individual promptly disappears, leaving the victim in a compromised position.

2. Pig-butchering schemes

Termed after the practice of fattening a pig prior to slaughter, these fraudulent schemes typically entail an individual establishing a rapport with a potential victim over a period of time, with the ultimate goal of gaining their confidence and subsequently pilfering their assets. To appear genuine, these scammers frequently fabricate fictitious online profiles, utilizing various details about their fabricated personal lives, including familial relationships, hobbies, and involvement in volunteer activities. They may also assume the role of investment professionals or exploit individuals seeking romantic companionship.

At a certain juncture, the fraudster steers the conversation toward investment-related matters, often involving digital assets, by providing enticing information about an investment opportunity that guarantees substantial returns with minimal risk. Regrettably, once victims make an ill-fated “investment,” the fraudster vanishes, absconding not only with their trust but also with their assets.

3. Social media and internet schemes

The surge in social media’s popularity in recent years has given rise to a novel type of scammer known as the “finfluencer” (short for financial influencer). A finfluencer possesses the ability to gain the trust of their social media followers and persuade them to invest in specific products. However, investors face multiple risks due to their association with finfluencers, including:

• • Insufficient expertise and qualifications – Not all finfluencers possess the necessary educational background and certifications to provide reliable investment advice.

• • Conflicts of interest – Finfluencers often receive compensation for endorsing particular investment products or services. This creates a conflict of interest, as their recommendations may be influenced more by the compensation they receive rather than genuinely assisting their followers in selecting suitable investments.

• • Market manipulation schemes – Social media platforms can become breeding grounds for schemes involving market manipulation. Some finfluencers actively seek to promote specific stocks or cryptocurrencies to artificially inflate their value before selling their own holdings. Such practices can result in significant losses for other investors.

• Absence of personalized financial advice – Finfluencers typically cater to a broad audience and offer general investment advice that may not be suitable for every individual investor. It is crucial to engage the services of a qualified advisor who can provide financial advice tailored to your specific goals.

How to Protect Yourself?

While the aforementioned risks can be disconcerting, there are proactive measures you can take to safeguard yourself from investment fraud. These include:

• Exclusively investing with reputable and regulated investment firms, which ensures a higher level of reliability and security.
• Verifying the legitimacy of any potential investment opportunities by reaching out to your wealth manager or conducting thorough research. When in doubt, seek professional guidance.
• Disregarding unsolicited emails and messages related to investments, as they often serve as a common medium for fraudulent activities.
• Refraining from sharing personal or financial information with unknown parties to mitigate the risk of identity theft or unauthorized access.
• Conducting extensive research on online platforms and trading sites before making any investments, ensuring they are reputable and trustworthy.
• Scrutinizing the credentials of individuals promoting investment opportunities, verifying their qualifications and background before considering any investment ventures.
• Employing strong passwords and implementing two-factor authentication for all your accounts, bolstering their security against unauthorized access.
• Accessing your accounts solely through secure networks and trusted devices to minimize the risk of interception or hacking.
• Regularly monitoring your accounts to promptly detect any signs of fraudulent activity, allowing you to take appropriate actions swiftly.
• Bearing in mind the adage that if an investment opportunity appears too good to be true, it is likely a deceptive scheme designed to defraud unsuspecting individuals.

By implementing these precautionary measures, you can significantly enhance your protection against investment fraud and promote a more secure investment experience.