NASAA’s Annual List Identifies Top Investor Threats for 2023
On April 20, 2023, the North American Securities Administrators Association (NASAA) released its annual list of top investor threats (the Annual List). The Annual List is based on a survey of state, provincial, and territorial securities regulators who were asked to name the most critical products and practices in 2023. The top three concerns were digital asset fraud, “pig-butchering” schemes, and social media and internet schemes. The Annual List, which follows NASAA’s 2022 Enforcement Report, reflects an underlying theme of how technological advances have removed barriers to mass marketing scams.
With respect to digital assets, so-called fraudsters “are continuing to leverage broad public interest in digital assets” and “their pitches often have nothing to do with blockchain technology and instead play on [the] fear of missing out.” Bad actors in the digital asset space may not be properly registered or licensed to deal in securities. Moreover, they may claim that their products lack any economic risk, which contradicts the fact that all securities involve some level of risk. Misleading information about an investment’s risks, especially when discussing a volatile asset class, can be detrimental to investors who succumb to external pressures and neglect performing their own due diligence.
Another concern of securities industry regulators is the prevalence of “pig-butchering” schemes whereby perpetrators contact and develop relationships with random people with the intention of draining their bank accounts. This is achieved by gaining trust with the victim – similar to affinity fraud – and over time soliciting greater and greater-sized investments. The name of this scheme derives from the practice of fattening a pig before slaughter. Regulators note in the Annual List that this type of scheme is often connected to fraudulent digital assets and is heavily tied to a victim’s emotions.
The third concern is connected to the dramatic rise in Millennials’ and Gen Z-ers’ interests in investing, largely due to market-related news dominating headlines since 2020. An offshoot of this interest in investing is the rise of the online “finfluencer.” A finfluencer, according to the NASAA, is “a person who, by virtue of their popular or cultural status, has the ability to influence the financial decision-making process of others through promotions or recommendations on social media.” While celebrity endorsements are nothing new in marketing, finfluencers promote financial products in a manner that can go viral and quickly reach a wide (and largely unsophisticated) audience, often without providing an appropriate level of disclosures or supporting data.
As a retail investor, it is always good practice to investigate a product and claims made about a product before deciding on a path forward. Caution is especially warranted with respect to financial content and advice found on social media. And this prudence should not only extend to online sources of investment information and opportunities, but to more traditional services as well. A retail investor can obtain registration and disciplinary information about financial advisors and their affiliated firms by using BrokerCheck, maintained by the Financial Industry Regulatory Authority (FINRA), and the Investment Adviser Public Disclosure website, maintained by the U.S. Securities and Exchange Commission (SEC).
The attorneys at Giarrusso Law Group LLC have considerable experience with issues unique to the financial services industry, including federal and state regulatory developments or industry trends affecting both investors and financial advisors. If you have a question about this recent announcement or any other industry matter, you may contact us at (201) 771-1115 or info@gialawgroup.com for a free and confidential consultation.