WeChat and Weixin are Chinese instant messaging, social media, and mobile payment apps developed by Tencent. First released in 2011, they became the world’s largest standalone mobile apps in 2018 with over 1 billion monthly active users.  The Federal Trade Commission is warning people about investment scams being perpetrated through WeChat.  The scams start with a barrage of social media posts urging people to invest in various household good and electronics promising returns of between 20% and 40% in one to three months.  The social media posts showed pictures and told the stories of phony successful investors making huge profits, all of which were lies.  The scammers used WeChat groups  to lure people into paying triple the price for iPhones, laptops and furniture in exchange for the promise to return the payments plus profits within three months.  At first, as is the case with all Ponzi schemes, early “investors” were paid the promised profits, however, as with all Ponzi schemes, there were no profits.  The early “investors” were merely paid with the funds paid by later “investors.”  Ultimately, the vast majority of investors lose everything.

This scam is also a  good example of what is called affinity fraud where people put undeserved trust in someone offering an investment opportunity because that person is “someone like me.”  Affinity fraud works because people trust other people who may share a common bond, such as family, religion or, in this case, ethnicity.   The list goes on and on.  Scammers take advantage of every connection they can make with their victims to gain their trust and then steal their money.

TIPS

Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her.  You can also check with your own state’s securities regulation office for similar information.  Many investment advisers will not be required to register with the SEC, but are required to register with your individual state’s securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association. Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.   You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular  investment adviser.

It is also important to remember that you should never  invest in something that you do not completely understand.  This was a mistake that many of Bernie Madoff’s victims made.  You also may want to check out the SEC’s investor education website at www.investor.gov.  Scammers can be very convincing and it may sound like there is a great opportunity for someone to make some money, but you must be careful that the person making money is not the scam artist taking yours. Additionally, investing with someone merely because you trust them because they share some connection with you is a very risky choice.

Finally, as with any investment, if it sounds too good to be true, it generally is.  This particular scam is a great example of an investment where the huge profits seem unrelated to the investment.

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