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A DAMNING report on Meta and the lackadaisical efforts of the company to take down dubious advertisements reaffirms the long-standing belief that the internet is not safe and cannot be trusted.

It was reported that Meta had internally estimated that 10% of its revenue for 2024 came from carrying fraudulent e-commerce advertisements, investment schemes that are actually scams, illegal online casinos and sites that sell dangerous medical substances.

Meta is the owner of Facebook, WhatsApp, Instagram and Messenger. Its response to those it suspects of putting up the advertisements is to charge them a premium with the hope of discouraging them. It was reported that only after Meta was 90% certain that such advertisements were scams would it label them so. But by then, it would be too late for the victims of such fraudulent social media schemes.

What’s worse is that the nature of algorithms is such that fraudulent advertisements keep popping up for those who browse such content. Naturally, some would fall for it.

The most common trick involves e-commerce fraud.

For instance, just last week, a friend incurred a HK$3,800 bill on her credit card for a product that she purchased through Facebook. The product was advertised for RM38. But when she used her card, it took her to another website where her bill was 100 times more.

It is fortunate that the housewife lost less than RM2,030 and not more. Victims of fraudulent investment schemes propagated through social media platforms have lost millions.

Social media is a platform with plenty of free financial advice. Algorithms are used to bombard users that frequent websites related to investments with all sorts of schemes. Using artificial intelligence (AI), tricksters produce deep fakes to convince visitors who frequent these websites.

Apart from deep fakes, there are financial influencers (finfluencers) who offer advice on various kinds of investments, ranging from stocks to commodities and digital coins. While some advice is worth listening to and taking note of, most are from those trying to push products that can be detrimental to investors.

Some finfluencers give advice that lacks depth. For instance, one personality called for a “buy” on gold, stating that the precious metal would only rise over the longer term. He did not promote any particular product.

While the finfluencer is right to state that the price of gold will rise over the long term, what he failed to point out is that the precious metal has already gone up by 55% so far this year and was already looking toppish after hitting a high of US$4,300 per ounce a month ago.

Gold is easily the best performing asset this year. But history shows that after hitting a new peak, a correction that lasts for many years tends to happen.

In January 1980, gold hit US$850 per ounce, rising more than 240% over less than a year. The precious metal drifted back down to less than US$300 per ounce two years later in 1982. The price of gold did not return to the US$800 per ounce level until 2008 — 28 years later.

The Securities Commission Malaysia (SC) has, since Nov 1, put into effect laws that allow the authorities to come after unlicensed finfluencers. The penalty is a fine of up to RM10 million and a jail term.

However, there is a lot of investment advice on social media that even the authorities cannot keep track of. Hence, it is largely left to individuals to do the screening themselves.

There are several red flags that social media users can easily use to determine the creditworthiness of investment schemes offering financial advice.

First, any investment advice that comes free is by itself a red flag. A question that social media users should ask themselves is why anyone would give free investment advice when such information is highly sought after.

Most investment gurus hold a seminar over two days on trending investment themes, and they charge a premium. At the end of the seminar, they tend to give a few specific investment ideas or stock picks.

So, when someone offers free investment advice, beware.

Second, there is no such thing as a guaranteed return on investment. Any scheme that offers a guaranteed return of more than the inflation rate is a red flag.

For instance, several investors took ACE Holdings Bhd to court a few years ago for failing to keep its promise of returns of between 12% and 15% per annum. 

In its defence, the company claims it never gave any guarantee on the return on investment.

The Employees Provident Fund (EPF), which is the biggest in the country with assets under management of RM1.3 trillion, offers a guaranteed return of only 2.5%, which is the country’s average inflation rate. That minimum return is guaranteed by law.

EPF usually declares more than 5% per annum, which is why it is by far the safest place for ordinary folks to put some money for safe and risk-free returns.

Some investment schemes such as unit trusts offer “capital guaranteed” products. In most cases, the returns are as stated. 

Usually, investors tend to get back their capital with only a measly profit after a few years.

Third, when the sales pitch of an investment product is based on scarcity of supply, it is a red flag. 

Usually, it is a scam to get the unsuspecting social media users interested and commit to some kind of investment.

Also, when an investment pitch includes examples of previous investors who had reaped huge returns, it is certainly a warning sign. 

Such investment pitches are usually common on the WhatsApp platform. What investors should note is real investment schemes are not managed via WhatsApp groups.

To help with the sales pitch, the scammers bombard unsuspecting social media users with deep fakes, an unintended consequence of AI. 

One has to remember that investment gurus usually do not provide advice on social media. Users need to always check and verify with the person themselves.

And finally, investors need to be wary of finfluencers on social media. Most give free advice without promoting any particular product. The idea is to generate a strong following.

However, one needs to know that just because the finfluencers’ investment strategy worked for them, it does not mean it can work for others. And in most cases, the finfluencers themselves would not highlight the downside and losses they have incurred over the years.

In the world of finance, there is no such thing as a free lunch. If something on social media comes across as too good to be true, then in most instances, it is probably the case.

Nothing comes easy. And when it comes easy, the chances are it goes away easily too.

M Shanmugam (m.shanmugam@ bizedge.com) is a contributing editor at The Edge

The views expressed here are the views of the writer and do not necessarily reflect those of the Daily Express. If you have something to share, write to us at: Forum@dailyexpress.com.my