Fake online stock advisories engage in investment scams

[Image source: Gettyimagesbank]

Investment scams are continuously evolving in South Korea ahead of the introduction of the Capital Markets Act, which will take effect in August 2024 and allows unauthorized investment advisors to only use one-way communication.

Scammers are now using social media services including Telegram, KakaoTalk, and Naver Band to deceive those who have already been scammed.

“The Korea Consumer Agency is inundated with reports of fraud by unauthorized investment advisory rooms, (or leading rooms), so we are providing consultation on compensation methods instead,” a message said.

This is a scene from a new type of online scam. Scam organizations set up call centers in Seoul and Incheon, then bought the personal information of investors who suffered losses from joining leading rooms that recommend stock picks. The scam organization approached victims, claiming that it will “compensation on behalf of the government.”

The organization then provided unfamiliar coins as compensation. A few days later, one of the scammers impersonated a securities firm employee and called the victim again, saying that he knew the victim obtained rare coins and pushing for a large purchase.

Victims, who were hoping for compensation, called the call center and transferred money for coin purchases. Using this method, scammers defrauded victims of a total of 5.4 billion won ($3.9 million) before being caught by the Seoul police in April 2024.

Maeil Business Newspaper contacted a digital black-market seller offering a leading room database, and the seller sent a few samples. The file contained detailed information including names, gender, age, the amount of money lost, and personal characteristics. There were also comments showing preferences about investment period and information on high-volume stocks, and all this information is initially exploited in leading rooms and sold to other online scammers.

Scam organizations are becoming even more organized and large-scale that they can create fake home trading systems (HTS). An investor, surnamed Park, joined a stock information community via social media and suffered a loss of 250 million won. He initially only read posts for information, but gained confidence as members congratulated each other on profits.

However, this was a setup, and the operator soon asked Park to download a private HTS. He deposited 20 million won and received 70 million won in profit. Encouraged and continually urged to invest more, he invested a total of 300 million won. His profit increased to 600 million won on the HTS. When Park requested a withdrawal, the operator hesitated and eventually cut off contact. The private HTS was fake, and all the numbers were fabricated.

The police arrested nine members of an organization that had defrauded 133 people of 9 billion won by creating a fake virtual asset futures exchange and showing false performance on a private HTS in July 2024.

Despite the various methods, the commonality is that scammers always use social engineering techniques that exploit victims’ emotions. The sequence starts with promoting the leading room, encouraging investment, paying out profits, raising expectations for more profit, urging larger investments, operator disappearing, and victimization.

The principle of the scam is to build trust with the victim and then target them for a large payoff, and the problem is that the average contract amount in leading rooms is increasing every year. According to the Korea Consumer Agency and Representative Hwang Un-ha’s office, the average contract amount rose from 4.08 million won in 2019 to 8.3 million won in 2023.

Scammers actively use social media to approach strangers. Hackers initially hack specific servers and sell stolen personal information on the dark web. Another hacker then buys this information, finds IDs and passwords, and uses credential stuffing to access multiple websites automatically and indiscriminately. Once the hacker successfully logs in with the stolen ID, the entire social media account is taken over.

The government will expand its joint investigation into phishing crimes to include investment leading rooms in the second half of 2024. The decision follows the recent arrest of various members of an organization that pocketed 12.4 billion won via investment leading room scams, highlighting the societal issue of related damages.