Detecting Financial Fraud via Social Media in Alberta

The ever increasing availability of ‘online data’ provides investors, big and small, with a tremendous new opportunity to enhance their due diligence capabilities.  To demonstrate, MediaBadger undertook an analysis of indicators of fraudulent activities discovered through citizen comments in social media channels around a investment fraud case in the Alberta’s courts in 2012. Our objective was to see if there were warning signs before the case became public.

 Criminal charges were laid against Gary Sorenson, of Merendon Mining, and Milowe Brost of the Calgary-based Institute for Financial Learning (IFFL) in 2009. The pair was accused of defrauding around 3,000 people in Canada, the U.S. and overseas out of anywhere from $100 million to $300 million between 1999 and 2008.  Sorenson, Brost and Dennis Morice of  Arbour Energy were also fined by the Alberta Securities Commission for what was one of Canada’s biggest frauds, but our research suggests that open-source, publicly available, digital media channels (e.g. social media) provided early indicators of suspicious or potentially fraudulent activity in the investment scheme, before criminal charges were made public. The evidence of suspicious activity as seen on-line, and is depicted on the timeline graphic below, provided advance warning to victimized investors.
 
 This case exposes evidence that should have been warning signs to investors and portfolio managers. The information was publicly available for discovery in social media channels long before the criminal investigation became public knowledge.  If the research methods, technologies and ongoing monitoring by MediaBadger (a Google search wouldn’t be sufficient to uncover warning signs in most cases) had been employed in a timely fashion, investors, investment  agents, regulatory authorities, oversight bodies, and law enforcement could have been ‘forewarned and forearmed’ of suspicious activity:
  • Prompting tougher questions from investors, that might have helped them avoid the deal entirely;

  • Raising warning signs after investments were made that steps had to be taken quickly to prevent the loss of all or some of their investment;

  • Extending regulators’ reach into cyberspace for information to deepen due diligence research; and,

  • Enabling investigators’ to conduct more efficient and comprehensive investigations across borders and time.

In Summary
This is one of a few cases we have documented where warning signs were present in open Web sources. Securities watchdogs, commercial crime investigators, even consumers and financial firms, have a new resource available to them through public data online; this ranges from social media to news media. An advantage of social media today is that people are speaking their minds and sometimes revealing golden bits of information that when understood, by placing them into context, can lead to critical insights that can save consumers and governments millions and reduce instances of fraud. Keeping in mind this is all publicly available information – people who make public statements online that are visible to anyone. They are not statements made in private channels.
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(Authors: A. Colson [Calgary office], M. MacKinnon, G. Crouch)