Investment scams and charity fraud crop up after every natural disaster. But Hurricane Sandy is the first U.S. catastrophe to occur in the social-media age.
"We are in uncharted territory," says Andrew Stoltmann, a Chicago securities attorney. "And social media has expanded the tentacles of scamsters exponentially."
A decade ago fraudsters had to rely on phone calls to deliver their high-pressure sales pitches. Then they were able to use e-mail. Now social media adds an entirely new weapon to their arsenal.
When a natural disaster like Hurricane Sandy occurs, there is an outpouring of relief from Americans who want to help. And they become easily vulnerable to fraud.
The latest outgrowth of social media is crowdsourced funding, or crowdfunding, which is a way to pool small donations on the Internet from large amounts of investors -- or people who want to support causes. It was approved by the JOBS Act, which was passed this year. Crowdfunding can't be used until next year for investments. But it can be used now for charities -- and, therefore, by scam artists looking to rip off the unwary.
Experts say this is one area to be approached with extra care. The North American Securities Administrators Association calls crowdfunding and Internet offers a top emerging investor threat. "You can't look in the eyes of the person that is on the other end of the computer," says Heath Abshure, NASAA president and Arkansas Securities commissioner. "You can't reach out and be sure that what they are telling you is or is not true."
You also may receive a Twitter or Facebook post from someone who claims to be a storm victim and asks you to send them money. "But because of the nature of social media, there is really no way to ensure that the person making the posting is in the United States, much less a storm victim," Abshure says.
If you receive a cold call, text or tweet, the best advice is to do your research. Charities are generally regulated by consumer protection laws and administered by the state attorney general. "In Arkansas charities looking to raise money in the state have to be registered," Abshure says.
Make sure the charity is legitimate and that your donation actually will go to the cause that you want to serve and not just benefit the people who administer the charity. Sometimes charity scams make it seem that they are affiliated with the Red Cross or have a name similar to another well-known charity. They not only want to rob you of your money, they also want to steal your identity.
To help avoid online scams, Apple and Red Cross have joined to offer a safe and easy system for making donations to help victims of Hurricane Sandy. Consumers simply can sign up in their iTunes account and click the "Donate" button. It is available on iPhone, iPad, iPod Touch, as well as Mac and Windows machines (www.itunes.com/superstormsandy).
Phony investments also crop up after disasters. There was a surge in microcap stock fraud after Hurricane Katrina, Stoltmann says. "The scamsters were pitching the next great stock that was going to benefit by cleanup operations. And I can guarantee you that those sorts of scams will be out there after Sandy.
The best advice: Don't invest in anything that is supposed to appreciate because of Hurricane Sandy. Delete any e-mails and social-media posts related to Sandy-related investment opportunities or charitable donations. "And, of course," Stoltmann says, "if it sounds too good to be true, it is."