Marketing creates potential for fraud

A new report says an increase in online marketing and distribution of stocks and other securities is creating more potential for fraud.

The report by the International Organization of Securities Commissions, of which several Canadian provincial regulators are members, says the risks are especially high for leveraged securities products that aren’t traded on major exchanges.

Firms selling these retail options, referred to as over-the-counter products, have been using social media and email to promote the securities, while also using internet-based trading platforms to sell and distribute them, the report notes.

The report, based on consultations with numerous international regulators, says that problems associated with online marketing include promoters pretending to be credible sources, junk emails that overpromise returns, and fake success stories shared through influencers. It says regulators are challenged in even detecting this activity because it’s often targeted to specific users, so isn’t necessarily publicly visible. The sheer volume of information posted online is also a problem, as is the cross-border nature of many of the perpetrators.

The report proposes that regulators be more proactive with their technology-based detection abilities, potentially seek more enforcement powers to take action against websites, and to increase the international sharing of data.