According to FINRA, scams such as pig butchering schemes have grown dramatically in recent years, with individual investors sometimes losing hundreds of thousands of dollars. This is where some bad actors are co-opting the identities of legitimate U.S. financial advisors in an effort to gain the trust of victims, before recommending fraudulent financial investments.
Scams such as pig butchering schemes have grown dramatically in recent years, with individual investors sometimes losing hundreds of thousands of dollars. However, individual investors are not the only victims of this fraud campaign. Financial advisors are also suffering as their identities are being impersonated, leading to long-term negative effects on their reputation and credibility.
These fraudsters seem to have attained a very good understanding of personal finance – enough to impersonate financial advisors (read on for an explanation from FINRA). Here is a brief explanation of the phases and how the scam works:
Phase 1 – A Slow Build
A stranger will contact their victim out of the blue via text message, on social media or on a messaging application such as WhatsApp or WeChat and attempt to build rapport. Over the course of days, weeks or even months, the fraudster will send messages about personal, non-investment-related topics. However, inevitably they will at some point steer the conversation toward investment-related topics, often asking whether you have an investment or crypto account.
Phase 2 – Sharpening the Knife
The goals for the next phase of the scheme are twofold: to create the perception that victims will make money by following the bad actor’s instructions and to ensure that victims have the ability to invest into the forthcoming scam. Though variations of these scams exist, the goal is usually the same – to entice people to put money toward the “opportunity” they’ve shared.
Phase 3 – The Slaughter
Capitalizing on the relationship they’ve established these scammers will then urge victims to deposit increasingly larger amounts. However, this is the point where victims are left facing devastating losses for various reasons – plummeting stock prices or lack of access to “trading platforms” for example.
Here are some ways to try to reduce your risk and be on the alert for red flags from fraudsters:
- Unexpected contact
- Refusal to participate in video chats
- Request for financial information
- Invitation to invest in specific financial products
- Unknown or confusing investment opportunity
- Unfamiliar trading platforms
- Exaggerated claims and elevated emotions
- Sense of urgency about an upcoming news announcement or share price increase
This post is purely informational and there is no immediate threat to your investments. However, we want to provide this information so that you can protect yourself as an ongoing effort to help you be more secure and "fit-to-click".
Talk with your financial advisor if you have any questions or concerns.