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SEC Attacks Social Media-Based Investment Schemes

On November 12, the U.S. Securities and Exchange Commission announced administrative charges against two Indian nationals who allegedly ran a “high-yield investment scheme” designed to lure customers through social media. According to an SEC order, the Commission’s Division of Enforcement believes the two men utilized a highly trafficked website, together with YouTube, Twitter, Facebook and other social networks, to convince investors to invest into a “pooled fund” with guaranteed profits. In reality, the SEC said, the promises were false and the “investments” were structured such that investors “could never recover their principal.”

In the Matter of Srivastava and Kavuri

The two men were trained software engineers with a background in Internet-based marketing. According to the SEC, from their base in India they established a website, using false names to register their domain in an effort to convince potential investors their operation was based in the United States. The men allegedly also used fictitious names and email accounts in their business correspondence to further this illusion.

The SEC said the website, known as “Profits Paradise,” received as many as 4,000 hits per day. The Profits Paradise site promised investor returns of between 180% and 240% on 120-day investments of between $10 and $3,500—with a 5% “referral commission” going to Profits Paradise. The website claimed these extraordinary profits would come through pooling investor funds in “forex, stocks, and commodities trading.”

The SEC complaint detailed a sophisticated social media campaign to simultaneously promote Profits Paradise while concealing its true ownership. There were purportedly YouTube videos detailing the investment plans, which, like the website, did not disclose the actual names or addresses of the plan operators. The SEC also said there were Facebook, Twitter and Google Plus sites established to market Profits Paradise. The Facebook page alone had more than 4,000 “likes” as of earlier this year, according to the SEC.

Ultimately, the SEC contends Profits Paradise “was never legitimate and is a classic example of a high-yield investment program.” The promised returns were unsustainable. And, in fact, investors were limited to withdrawing $400 per day from their account. This meant anyone who invested more than $20,000 could never recover their principal, as the $400 limit would not even cover the promised interest and profits on the account.

The Risks of Social Media-Based Investing

In light of its recent charges against the owners of Profits Paradise, the SEC has updated its “Investor Alert” warning customers about the dangers of social media and investing. The SEC advises individuals not to respond to any unsolicited email or social media message offering “can’t miss” investments. In most cases, the SEC warns, these schemes are fraudulent.

Investors should always be wary of efforts to tout and promote risky investments through Twitter, Facebook or other social media. It is too easy to conceal a person’s identity when using social media, meaning an investor may not know who exactly he or she is investing with. If you have found yourself the victim of an unsolicited investment email, social media investment campaign, or any other investment scheme and need advice on how to proceed, contact Boca Raton attorney Gregory Tendrich, P.A. today.

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