Are TikTok investment fads the next “Ponzi” scheme?

"Over 50% of 18-34 year olds who invest get their investment advice or ideas from TikTok. But with this growth has also come a society of predators, cultivating a narrative that anyone can get rich quick."

Lauren Steel Smith | Associate

By Lauren Steel-Smith, Commercial Litigation Associate

Investment scams aren’t a new thing to us. But the tactics used are becoming ever-more sophisticated and it’s our job to spot them.

As a litigation solicitor, I’m exposed to a host of investment fraud cases which have used elaborate strategies to part targets with their cash.

We’ve all heard of the classic Ponzi and Pyramid schemes that promised a high return on investment (and we also know how those typically end!), but has the growth of TikTok provided a new generation of “investment experts” with a platform to target those looking to make cash, quick?

Hidden in plain sight

Over the past few years, Netflix has released a host of documentaries which explore how social media is being used to target thousands of users, exploiting the young, lonely, desperate and vulnerable.

One of its most recent (and most shocking) exploits was the recent “Tinder Swindler” documentary. The uncovering of a highly sophisticated scam artist who took the identity of family man, Simon Leviev. Attracting single women with his lavish Instagram lifestyle, Leviev was able to deceive women into sending him thousands of pounds under the pretense that he had enemies out to get him.

Some – to put it politely – ignorant people had the gall to blame the women for being ‘scammed’ by this criminal. But what the so called “Prince of Diamonds” was executing was an elaborate, professional and well-executed scam, utilising all the dark arts and tools that social media provides a scammer with at their fingertips.

And worryingly, this isn’t a stand-alone incident. It’s happening all the time.

Social media: a scammer’s haven

There’s no doubt that the growth of Instagram and TikTok has forged communities that insight positive change and open new conversations, but with this growth has also come a society of predators, cultivating a narrative that anyone can get rich quick.

Utilising the façade of social media, these scammers create the illusion of extreme wealth to a young generation, posting highly desirable lifestyles posing on beaches, opening doors to Lamborghinis, and purchasing the latest Rolex.

And to some degree, that’s what social media is – an illusion – and we must take it all with a pinch of salt. But when it’s being used to manipulate others – particularly into parting with their own cash – I question the morality of it, and whether more needs to be done.

Can you really get rich, quick?

Some gen Z and millennials seem to have an obsession with getting rich quick.

A study by Barclays Smart Investor revealed that “Nearly half (49%) of those aged 18-24 plan to only invest money for 2-5 years. Over a fifth (21%) say they are investing to ‘take advantage of the market’ and 16% plan to ‘play the markets’ to make fast profits.”

Reading further into the gen Z and millennial investors, Hargreaves Landsdown reported that over 50% of 18-34 year olds who invest get their investment advice or ideas from TikTok.

On the back of this, I signed up to TikTok to check what type of content was being shared in terms of investment advice. It didn’t come as a surprise to me, but I was disgusted by the type of advice being shared by accounts with hundreds of thousands of followers. Inaccurate, ill-advised and down-right dangerous in some cases.

Content creators in a position of influence, exploiting their platform and growing their following under the promise of lines like:

“How I’ve made £70k with no job”

“What they DON’T tell you in college”

“How to make £10k-£20k a month!”

I spotted one video in particular that had 3.6million views. A quick look into the account’s bio, you can see a link through to a website to purchase online courses in investment training. There was no regulator for these courses, and there was no indication that this young man had any education in finance or economics.

And the longer I spent scrolling, the more of these accounts I found.

Many users claiming to be “millionaires” in their mid-20s all seemed to have the answer for you – IF you purchased their course for anything between £99 – £999.

These TikTok users may well be millionaires, however I would make a sizeable bet that they weren’t making it by investing into cryptocurrency for example, but instead by advocating purchasing one of these courses.

And while these business models aren’t strictly “Ponzi/Pyramid schemes,” they are uncomfortably similar and, in many ways, worse. They certainly provide a platform for such schemes to start…

If it seems too good to be true, it probably is

With recent announcements from the government on changes to its Online Safety Bill, it’s clear that this is a topic that’s growing in momentum. With wider reform of online advertising regulations set to be enforced to tackle harmful and misleading advertisements, it’s refreshing to see government officials taking this seriously.

But will new measures be stringent enough to tackle this growing issue? It’s something we’ll be closely monitoring at Primas Law.

Five red flags to look out for in investing

  1. “We aren’t FCA regulated”

The Financial Conduct authority protect tens of thousands of customers in the financial sector. They protect and regulate companies who run stocks and shares ISAs, pensions, and other investment projects.

Investing or placing your money with a financial firm who has FCA regulation means that your investment is protected if you’re mis-sold a product.

Ask and check if the person/company is regulated and always cross check that with the FCA website.

  1. “We can guarantee you returns that an FCA firm can’t as we aren’t restricted by the market”

This is a huge red flag, and is one of the most common ways scammers draw people in – particularly those who are new to the investment world.

The simple fact is, nobody can guarantee returns on investments or guarantee that you won’t lose your money. Live by the golden rule that if it sounds too good to be true, it probably is. 

  1. “How I became millionaire while at home”

A big trend we’ve noticed at the moment is those taking to social media to brag how they became millionaires at home by doing “this simple trick.”

The simple trick that’s hidden behind a £1,000 paywall.

These users have no financial background or experience and are simply not qualified to be providing you with investment advice! Ask yourself the question, if it was really that simple, why would an apparent millionaire share their tricks of the trade?

  1. “There is no contract”

If you’re investing thousands of pounds – you want it written down!

Many scammers make themselves look legitimate by providing you with wordy and professional-sounding contracts. If a contract has been provided, always get a lawyer to look it over. It may cost you a little in the short term, but could save you thousands in the long term – as a lot of our investment fraud clients have learnt.

  1. “Your friend did really well with this investment”

While this may not always be a sign that you’re being scammed, one way scammers legitimise themselves is to advertise through your friends. This is how Ponzi/Pyramid schemes continue to be successful even today.

Do not take it for granted that just because your friend is making thousands, you will too. Do your own research and form your own opinion as it could be your money that ends up lining your friend’s pockets!

Our litigation team has supported a host of clients in investment fraud cases. For an informal conversation with one of the team, contact me directly on lauren.steel-smith@primaslaw.co.uk.

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