OSC research found AI-enhanced scams pose significantly more risk to investors compared to conventional scams. It also identified ways to protect investors. Find out more about these scams and how to keep your money safe.
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Why are AI scams a concern?
The use of artificial intelligence (AI) in retail investing has increased significantly. While these technologies can be useful for investors, they also pose risks.
Generative AI can be used to quickly spread common investment scams. Generative AI can autonomously generate new content, such as text, images, audio, and video based on inputs and data it has been trained on.
AI-enhanced scams are more pervasive, harder to detect, and potentially more damaging than conventional scams.
Anyone can be susceptible to these scams. Losing money through an investment scam can have long-term consequences. In addition to financial losses, you may face identity theft or unauthorized access to your financial accounts, and psychological harm, including stress. The integrity of the financial markets is also at risk when AI is used to manipulate markets, deceive investors, and create scams.
The rapid escalation in the scale and application of AI has resulted in a critical challenge for retail investor protection against investment scams. To promote retail investor protection, the OSC studied current trends in AI-enabled online scams, how investors are responding and strategies for retail investor protection.
Read the full report: Artificial Intelligence and Retail Investing: Scams and Effective Countermeasures.
How does AI make investment scams worse?
Generative AI technologies can turbocharge common investment scams by increasing their reach, efficiency, and effectiveness. The OSC’s literature and environmental scan found that fraudsters are exploiting AI capabilities to create scams that more effectively deceive investors, orchestrate fraudulent schemes, and manipulate markets. For example, AI can clean up the broken language and weird font type typically seen in conventional scams.
New types of scams are also being developed using Generative AI. You might see a video that looks like a celebrity is promoting an investment opportunity — but it’s actually a deepfake. Neither the investment nor the celebrity endorsement is real. Deepfakes can be images, videos, or voice clips that are manipulated to impersonate someone and deceive you. AI-enhanced scams pose significant risks to investor protection and the integrity of capital markets.
Find out more about AI voice cloning scams and deepfakes.
Scammers may target you through a post or ad on social media. AI can improve the targeting of these posts. If you click on the post, scammers can take a personalized approach. They may pretend to be a financial professional who is knowledgeable about investment opportunities. Generative AI can automate communication with you, and it can increase the sophistication of the messaging.
Scammers often use other tactics such as earning your trust. They also are experts at using language to promote investment opportunities that feels urgent and that tries to convince you the investment opportunity will potentially offer high rewards. They want to elicit a powerful emotional response in you called fear of missing out (FOMO). It’s a behavioural bias where you don’t want to “lose out” on lucrative investment opportunities or fall behind. This tactic may cause you to act impulsively and ignore telltale signs of scams.
AI advancements are transforming the cybercrime landscape. Fraudsters are revisiting old investing scams and creating new ones such as:
- Impersonation of AI platforms – You could encounter fake websites or mobile apps that look like legitimate AI platforms. They may attract your interest on social media by promising automated trading or investment services powered by AI. If you register with the platform and deposit funds, you might initially be able to successfully withdraw money and the site will seem legitimate. But then, after you have invested more, you may discover your money is gone and the scammer too.
- Pump and dump schemes – Scammers will promote certain stocks or cryptocurrencies. They try to get your attention by claiming their recommendations are based on AI algorithms. After artificially inflating the value of these assets, scammers will sell, the price will crash, and you’re left with losses.
- Unverified AI trading bots – Scammers will promote automated trading bots supposedly powered by advanced AI algorithms that can execute profitable trades. You may be intrigued by the promise of quick and substantial profits, thinking that AI can analyze market fundamentals better than humans. In reality, they may not be using AI at all.
How susceptible are investors to AI-enhanced scams?
AI-enhanced scams pose significantly more risk to investors compared to conventional scams.
The OSC conducted an online simulation experiment, which examined investors’ susceptibility to fraudulent investment opportunities.
Over 2,000 Canadian participants invested a hypothetical $10,000 across six investment opportunities in a simulated, social media environment. Investment opportunities promoted ETFs, cryptocurrencies, as well as investment advising services (e.g., robo-advising or AI-backed trading algorithms).
The randomized controlled trial included a combination of legitimate investment opportunities, conventional scams, and/or AI-enhanced scams. The experiment assessed how participants allocated their funds across the investment opportunities.
It found participants invested 22% more hypothetical cash in AI-enhanced scams than in conventional scams. This finding suggests that using widely available generative AI tools to enhance fraudulent materials can make scams much more compelling.
How can investors avoid AI-enhanced scams?
The behavioural science experiment assessed the effectiveness of strategies to reduce investor susceptibility to AI-enhanced investment scams. Some participants were exposed to mitigation techniques.
Two strategies were found to be effective ways to protect investors from scams:
1. Increased investor awareness (inoculation) – Providing scam awareness information to investors before they see an investment opportunity. For example, teaching investors to spot the warning signs of investment scams, such as promises of high returns with little risk. AI-enabled scams may also claim to use AI to generate high returns for investors.
Education can help investors avoid scams by knowing what they can do to verify the legitimacy of investment opportunities. This can include confirming sender addresses; looking for discrepancies or unusual requests; and verifying that the person providing investment advice or firm or platform being promoted is registered to do so.
2. Web browser plug-in – Flagging potentially “high-risk” investment opportunities.
Both mitigation strategies were effective at reducing susceptibility to AI-enabled scams, as measured through invested dollars. The “inoculation” strategy reduced investment in fraudulent opportunities by 10%, while the web-browser plug-in reduced investment by 31%.
The OSC partnered with the Behavioural Insights Team (BIT) to conduct this research.
Can you spot an investment scam? Try our scam spotter.
Why is the OSC conducting AI research?
From an investor protection perspective, AI is a tool that could be used for both good and bad. However, it poses significant risks to retail investors when the advanced capabilities of AI are exploited to manipulate markets, deceive investors, and orchestrate fraudulent schemes.
The OSC is taking a holistic approach to evaluating the impact of AI systems on capital markets. This includes understanding how market participants are benefiting from the use of AI systems and understanding the risks associated with their use. It also includes analyzing how their use impacts certain actors differently, whether investors, marketplaces, advisors, dealers, investment funds, and more.
Artificial Intelligence and Retail Investing: Scams and Effective Countermeasures builds on OSC’s recently released report Artificial Intelligence and Retail Investing: Use Cases and Experimental Research. These reports reinforce the benefit of using behavioural science as a policy tool by regulators.
As AI scams continue to proliferate, the OSC will undertake more research to help capital markets stakeholders understand the implications and potential protections for retail investors.
See the latest reported fraud stats Canadian Anti-Fraud Centre — keep in mind most fraud is not reported (only about one-in-ten incidents is reported).
