Posted on Oct. 28, 2021, 6:48 PM
Don’t believe everything you can read on Facebook or Reddit. In short, this is the message that the European (ESMA) and French (AMF) gendarmes of the financial markets insisted on hammering this Thursday, with individuals who are passionate about the Stock Exchange.
In a press release, ESMA explains that investment recommendations have multiplied on social networks, and that individuals are not always aware of the risks associated with this kind of advice. The market policeman considers that these recommendations “must be produced and disseminated in an objective and transparent manner” and recalls that they may be the subject of prosecution if these rules are not respected.
He also considers “crucial that investors are able to easily identify the source of information and possible conflicts of interest of those who make the recommendations.”
800,000 new investors in two years
Nearly 800,000 new individual investors, with a younger profile, have taken their first steps on the markets over the past two years, the AMF said. She encourages investors to seek information from reliable sources and to be wary of “unrealistic promises of quick, effortless and risk-free gains”.
ESMA had already issued a warning last February, following the enthusiasm of individuals for titles like GameStop, widely encouraged by thousands of messages on the Reddit platform.
Social networks have indeed brought old techniques of manipulation on the markets up to date. In the United States, a 50-year-old trader was arrested on Tuesday for having earned no less than $ 1 million by regularly lying to his more than 70,000 followers on Twitter. The man from Ohio has been charged in New York City federal court with fraud and market manipulation.
Kettle scam
He used in particular the technique known as the kettle, which consists in spreading false information to increase the price of a share, before reselling its securities to collect the capital gain. The American market policeman had spotted, in February, the attempted price manipulation on one of the companies touted by the trader and had suspended its course.
In particular, he had secretly bought “penny stocks”, these titles worth less than $ 1, which he was promoting under the pseudonym “AlexDeLarge”, the ultraviolent character from the film “Clockwork Orange”. Between his number of followers on Twitter and the screenshots he shared of his brokerage accounts to brag about his success, some investors got caught in the trap. At least two of them lost thousands of dollars.
“The kettle technique causes mistrust in the markets and makes real victims, who often bet big only to then see their hopes shattered by the greed of a fraudster,” recalled the head of the New York office in charge of security interior.
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