Flooding caused by Hurricane Sandy left houses partially underwater in Belmar, N.J.(Photo: Peter Ackerman, Asbury Park Press)
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
HOW TO DONATE TO OPERATION SANDY RELIEF
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
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
MORE: NASAA warns investors to watch for Sandy scams
INVESTIGATE: How to check out your charity
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,"
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.
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).
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."