Yes, the Federal Bureau of Investigation (FBI) thinks that social media networks are the potential breeding ground for securities fraud. It has appointed special agents to monitor Twitter, Facebook, Myspace and many other social networking sites, according to the two top FBI officials in New York who are overseeing an investigation into insider trading, particularly in the hedge fund industry.
April Brooks and David Chaves said that you can't predict the next wave of securities fraud, but it has a lot to do with the advances in social networking and technology. "I will tell you technology will play a huge part, social media, Twitter. Any kind of technology that is new and doesn't exist today, if there is any way to exploit it, these individuals will exploit it," April Brooks told Reuters.
Chaves and Brooks are overseeing "Operation Perfect Hedge" which has found over 60 analysts, hedge fund traders and consultants guilty of insider trading. Last week, an ex-employee of SAC Capital managed by Steven Cohen, Matthew Martoma was charged with a $276 million insider trading scheme. However, Cohen was not charged with any violation.
Institutional investors, hedge funds and investment research firms embrace Facebook and Twitter to communicate their investment strategies and ideas. An independent analyst Daniel Yu says that people in the financial world are using Twitter as a strong distribution mechanism, and many times it has huge market impacts.
Research shows that social media, especially Twitter, immediately indicates any change in investor sentiments about a particular stock. Brooks and Chaves both work in the New York branch securities division of FBI. Hedge funds are often found involved in insider trading. But Brooks said that they don't have any vendetta against hedge fund industry. FBI is just making efforts to make the stock market fair to everyone.
Of course, it's not the first time FBI is monitoring the social networks. The bureau announced earlier this year that it is looking to develop a Web app to monitor the social networking sites and various news feeds constantly.