Artificial Intelligence (AI) and Investment Fraud – How to Protect Yourself
Artificial Intelligence (AI) is penetrating every facet of today’s lives. AI is everywhere, from AI-driven cars and robots to sophisticated chatbots like GPT. While the potential benefits of AI are vast and varied, its use also brings forth ethical concerns and possible risks. One such risk is the rise of AI-enabled investment fraud, where people leverage AI algorithms to deceive investors for their personal gain. As instances of artificial intelligence and investment fraud become increasingly common, it is imperative to arm yourself with the right knowledge and strategies that can protect your investments and financial well-being.
A financial advisor can help you understand the most common investment fraud schemes, explain ways to safeguard your finances in today’s time, and help you learn how to use AI for investing correctly to maximize your gains and minimize risks. This guide will also explore some popularartificial intelligence scams and provide actionable insights on how to safeguard yourself against such threats.
Below are five ways you can protect yourself from artificial intelligence scams:
1. Always check for licenses and registrations
Ensuring that investment firms, professionals, and platforms are appropriately licensed and registered is a fundamental step in protecting yourself against investment fraud and scams. Federal and state laws typically mandate securities entities to register with relevant regulatory bodies, such as the Securities and Exchange Commission (SEC). These bodies, governed by Federal and state regulations, aim to safeguard investors by ensuring that investment entities adhere to specific standards and guidelines. Thanks to these registrations, regulatory authorities can monitor and oversee the activities of securities firms, professionals, and exchanges to ensure compliance with securities laws.
Performing due diligence is an essential aspect of investment decision-making, and verifying licenses and registrations is a critical component of this process. Conducting thorough research on investment entities helps you assess their credibility, track record, and regulatory compliance. You can better evaluate the risks and return potential associated with a particular investment opportunity and make informed decisions to protect your assets.
Checking licenses and registrations can help you verify the legitimacy of investment entities and provide legal protection in case of disputes or fraudulent activities. A lack of registration or licensing should always be considered a major red flag that you should not ignore. Unregistered investment entities may operate illegally or engage in fraudulent activities without regulatory oversight. Companies or professionals who fail to provide evidence of their registration status should be viewed with skepticism, as they may be attempting to deceive you in one way or another.
Luckily, investors have access to various resources and tools to verify the registration status of investment entities. Websites such as Investor.gov, maintained by the SEC, provide valuable information and tools to research investment professionals, firms, and products. You can search for registered investment professionals, check their registration status, and review any disciplinary history or regulatory actions taken against them. These resources can help you to make informed decisions and avoid falling victim to investment fraud. Regulatory authorities conduct regular inspections, audits, and investigations to ensure compliance with securities laws and protect the financial interests of investors. In the event of misconduct or violations, regulatory agencies have the authority to impose sanctions, fines, or legal actions against offenders. So, by checking for licenses and registrations, you also contribute to the overall accountability and integrity of the financial industry.
2. Avoid using AI-generated info when investing
Relying solely on AI-generated information to make investment decisions can be a risky endeavor. While AI technology has made significant advancements in analyzing and structuring vast amounts of data and identifying potential investment opportunities, there are inherent limitations and risks associated with using AI-generated information. One of the primary concerns with AI-generated information is the possibility of inaccuracies or incompleteness in the underlying data. AI algorithms use past data to make predictions and recommendations about future market trends and investment opportunities. However, if the input data is flawed, biased, outdated, or incomplete, it can result in inaccurate conclusions and unreliable investment advice. Moreover, AI algorithms need to be constantly updated with new information. If the platforms offering this information lag, you end up using stale information that can cost you in more ways than one. Making investment decisions based on stale information may lead to missed opportunities or poor investment choices. It may also result in financial losses if prices have significantly changed since the data was last updated. Hence, you should be wary of mindlessly trusting AI-generated insights without independently verifying the accuracy and reliability of the underlying data.
Additionally, using AI for investment information is tricky as this information may be susceptible to manipulation or bias. For example, AI algorithms may inadvertently incorporate false or misleading information about financial, political, or other events, resulting in flawed analysis and misguided investment decisions. Malicious entities may intentionally disseminate false information to manipulate stock prices or market sentiment, further complicating the reliability of AI-generated insights. You must evaluate the credibility and integrity of such sources to avoid falling prey to misleading data.
While AI algorithms excel at processing large volumes of data and identifying patterns, they may lack the contextual understanding necessary for making informed investment decisions. AI-generated information may overlook crucial nuances, market dynamics, and qualitative factors that affect human choices. It also does not account for individual needs, goals, and limitations, such as evolving financial needs that arise as you age, financial emergencies and job loss, financial anxiety, etc. As a result, blindly following AI-generated recommendations without considering the broader market context, qualitative factors, and personal goals can lead to suboptimal investment outcomes.
Another risk associated with relying solely on AI-generated information is the potential for overreliance on technology-driven solutions. While AI can be used in traditional investment research and analysis, it should not replace human judgment and critical thinking. Investors who become overly dependent on AI-generated insights may overlook valuable opportunities or fail to adequately assess the risks associated with their investment decisions. Relying solely on automated algorithms for investment advice may also have legal and compliance implications, particularly in regulated industries such as finance.
Knowing how to use AI for investing to ensure optimal results is essential. Ideally, maintaining a balanced approach that incorporates both AI-driven analytics and human judgment is necessary for effective decision-making in the financial markets.
3. Exercise caution with unwanted communication
Being cautious of unwanted and unsolicited communication, mainly when it involves investment opportunities, is paramount in safeguarding yourself against potential scams and frauds. In today’s digital age, advancements in AI technology have made it easier than ever for fraudsters to impersonate individuals and manipulate information to deceive unsuspecting victims.
Advancements in AI technology have enabled the creation of highly convincing audio and video content that can mimic the actions and words of virtually anyone, including your peers, family members, and friends. This opens the door for fraudsters to impersonate trusted individuals in your personal and professional groups and manipulate communication channels to deceive unsuspecting victims. Investors should be wary of unsolicited communication, such as emails, SMS, phone calls, or social media messages and tags, that may appear genuine but could be orchestrated by fraudsters. Before responding to unsolicited communication, try to verify the authenticity of the sender and the information provided. This may involve conducting independent research, contacting known sources directly, or using trusted verification tools and platforms like the SEC, as highlighted above. Verifying the legitimacy of the communication as well as the communicator allows you to mitigate the risk of falling victim to impersonation scams designed to extract personal information or financial assets.
There are several red flags that you should watch for when evaluating unsolicited communication. Fraudsters often use tactics, such as pressure, to create a sense of urgency and compel victims to act quickly without carefully considering the risks. So, exercise patience and caution if someone forces you to purchase a product or spend money instantly. You should also be cautious of individuals making guaranteed promises of high returns or investment opportunities that seem too good to be true, as they may be indicative of a fraudulent scheme. There are usually no ways to make quick, guaranteed money. Wealth creation is a gradual process, and anyone claiming otherwise may be fraudulent. If the communication lacks transparency or provides vague or inconsistent information about the investment opportunity, it may be a warning of potential fraud. Lastly, you must be wary of unsolicited requests for your personal, professional, or financial information. This includes your bank or brokerage account details, Social Security number, etc., as they may be attempts to steal sensitive information.
Moreover, if you post frequently on social media or any other online platform, it is essential to be aware that fraudsters can exploit this information to perpetrate scams. They can train AI models to mimic your writing style and use it to communicate with your contacts, including family members and friends. For instance, they may impersonate you and request financial assistance, claiming to be in a dire situation.
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4. Beware of pump-and-dump schemes
In a pump-and-dump scheme, fraudsters inflate a company’s stock price, also known as pumping the price, by spreading positive information about a company’s products or services related to AI innovation. This information is projected in a positive manner but is usually false. Fraudsters may spread misinformation through various channels, such as online ads, fake news coverage, or social media promotions.
False information can attract investors who believe in the potential of AI-related innovations. As more investors buy the stock based on misleading information, the demand increases, and the stock price rises. However, once the fraudsters have artificially inflated the stock price to a desirable level, they sell off their shares at a profit. This is known as dumping stocks onto the market.
The aftermath of a pump-and-dump scheme typically results in a sharp decline in the stock price once the false hype subsides. As a result, investors who bought the stock at inflated prices end up losing a significant portion of their investment. While all types of stocks can be susceptible to pump-and-dump schemes, penny stocks may be the worst affected as they are low-priced and have limited publicly available information about the companies.
5. Always report fraud
Reporting fraud is essential to hold perpetrators accountable and prevent further harm to yourself and others. If you suspect that you have fallen victim to AI fraud, it is crucial to take immediate action and seek assistance. Here are some steps you can take to report fraud and protect yourself:
a. Contact DISB enforcement and consumer protection division: You can reach out to the Securities and Banking (DISB) at (202) 727-8000. They specialize in handling cases of financial fraud and can provide guidance on how to proceed with your complaint. Alternatively, you can request assistance through their online portal.
b. File a complaint with the SEC: You also have the option to file a complaint directly with the SEC. The SEC is the primary regulatory agency overseeing securities markets in the United States. You can visit the SEC’s website at sec.gov/oiea/Complaint.html and submit the necessary information online to file a complaint. The SEC investigates allegations of securities fraud and takes enforcement action against perpetrators.
c. Contact other regulatory agencies: In addition to the DISB and SEC, you may also consider contacting other regulatory authorities, such as the Federal Trade Commission (FTC) or local law enforcement authorities. Reporting the fraud to multiple agencies can increase the chances of it being investigated and addressed promptly.
d. Seek legal advice: Consider seeking legal counsel from a qualified attorney who specializes in securities law or financial fraud. An attorney can help you understand your rights and available options for recourse. They may also represent you in any legal proceedings that may arise from the fraud.
Apart from the steps mentioned above, you must also try to educate others by reporting fraud. This way, you not only protect yourself but also help others spot similar scams in the future. Share your experience with your friends, children, parents, and colleagues to raise awareness about AI fraud and the importance of reporting suspicious activity.
1. What is considered investment fraud, and how does AI contribute?
Investment fraud involves various practices that criminals employ to steal your money or assets from you. With the advancement in AI, many fraudsters are now using the latest technology, such as false identities, realistic fake images and videos, also known as deepfakes, and manipulating social media to dupe people.
With AI, fraudsters can automate aspects of their schemes, scale their operations, and personalize messages to make them more convincing. As a result, it becomes increasingly challenging for you to detect and protect yourself against these sophisticated frauds.
2. Why do you need to protect yourself from artificial intelligence scams and investment fraud?
Here are some reasons why safeguarding yourself from AI is essential:
a. Unpredictability of AI usage
AI models are advancing rapidly with constantly evolving strategies that are both innovative and potentially harmful. The intentions behind these developments are not always positive and may, at times, favor malicious intents. Thus, protecting against AI scams and investment fraud becomes imperative to avoid unforeseen risks.
b. Advanced fabrication methods
AI technology is now capable of creating highly convincing audio and video content that can mimic the behaviors and speech of individuals, including your acquaintances and loved ones, as well as celebrities, influencers, popular investors, economists, and politicians. This opens avenues for fraudsters to fabricate deceptive content and scam people.
c. Exposure of personal data
In today’s digital landscape, people routinely share personal information through various online platforms, including social media, banking services, and other apps. As a result, maintaining true privacy becomes a daunting task. The websites or apps you upload your personal information to may sell it to third parties. These third parties may use this data to scam you. Therefore, it is essential to protect yourself from such artificial intelligence scams.
d. Sophisticated communication tactics
Fraudsters leverage AI technology to craft convincing emails, messages, and other forms of communication that appear legitimate. Through continuous refinement of AI-driven models, these deceptive tactics become increasingly challenging to detect, increasing the likelihood of individuals falling victim to phishing schemes, fraudulent investment schemes, or other financial scams.
e. Automated account breaches
AI-powered bots may be able to crack your passwords and gain unauthorized access to your online investment accounts. This can augment the scale and speed of potential account breaches. You need robust security measures, such as two-factor authentication, regular password updates, captchas, and more, to protect against AI-driven breaches.
To conclude
The presence of AI in today’s world is inevitable, and its widespread use, scale, and adoption may be beyond your control. However, while you may not have the power to stop its progress, being aware of its pitfalls is essential to avoid falling victim to artificial intelligence scams. Education is critical to protecting yourself effectively. Additionally, relying on authenticated sources, platforms, and individuals can further bolster your strategy against fraudulent activities. Hiring a financial advisor can also be helpful. Remember, a financial advisor offers specialized human intervention that may be more prudent than relying solely on AI in making investing decisions. Staying informed and leveraging human expertise alongside technological advancements can help you avoid scams and invest confidently.
Use the free advisor match service to get matched with vetted financial advisors who can offer you guidance and insights on how to protect yourself from scams while educating you on the best investment practices. Answer a few simple questions based on your financial needs, and the match tool can help connect you with 1 to 3 financial advisors who are best suited to help you.
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