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.
(Authors: A. Colson [Calgary office], M. MacKinnon, G. Crouch)

How A Social Media Crisis Evolves

There’ve been enough social media crises since 2005 and there will be more to come. Based on the research we’ve done on hundreds of projects, we’ve been able to map several media crisis for clients. As a result we’ve been able to put the archictecture behind how a social media crisis forms – not to mention developing the algorithms for detecting them much earlier than run of the mill reputation management tools. It’s important to note that reputation management and social media monitoring tools are not really designed to detect a crisis impending. Despite what they might promise.

First: When Not To Panic
Just because something hits the social web, it is not necessarily a reason to panic. It may not be as bad as you think. More on that later.

How A Social Media Crisis Starts: Spark
As with most anything, a crisis situation in social media starts with an “input” which can be from a news story, a conversation or an experience (e.g. United Breaks Guitars was an experience based input.) It is virtually impossible to detect any form of signal that would indicate a social media crisis is about to loom. One way is if you’re company or government agency is about to issue a press release or gets a call from the media. It is likely a crisis in social media may occur when these actions happen and good risk mitigation is to start monitoring online activity. But something always sparks a crisis.

The Myth Forms
We call it a “myth” because it may be unverifiable at the time, it may not be an entire truth or it may be a perceived issue by the person/group offended. it may also be a “construct” designed to create a social media crisis for the intended target. Myths come about in various ways for various purposes. But as they form, they give off “weak signals” that something may gain traction and evolve into a crisis. Unfortunately, this is where 99% of social media monitoring tools fail…because they only work with keywords and unless you know and are monitoring for all these keywords (a very expensive proposition) you will likely not see the myth. We’ve developed a process for this at MediaBadger (hey, gotta toot our horn a little bit right?) If a company or government department can detect a myth forming, there is an opportunity to stop it or mitigate the potential damage.

The Myth Gains Popularity: Amplification
At this stage, the myth evolves from a small, relatively contained network of people and starts to gain traction in the wider arena of social media. We measure this by looking at two critical factors; 1) acceleration, or how fast the issue is spreading across a number of social media channels and 2) adoption or who is adopting the story, are the influencers or authorities, is it reaching a broader public awareness? These factors combine to give an organisation a sense of whether this will be a small, medium or major crisis. It can also give an indication of when an issue in cyberspace is about to hit the mass media. Mass media is critical still in the public relations cycle.

Full Blow Crisis: The Narrative
Once a story hits the mass news media in a region, country or globally then it’s full on crisis management. This is sadly, where the majority of businesses, governments, public relations firms still tend to focus. If an organisation understands the nature of myths in online spaces, they could head off or reduce/mitigate a number of crises from happening. Once the narrative is formed, it is just damage control. This is where good PR teams come into play and online reputation management tools (those with engagement capability like Hootsuite) earn their pay.

The diagram at the bottom shows the steps to a social media crisis. The “architecture” if you will. We hope that this helps PR practitioners and companies better understand how a crisis comes about in social media and their planning processes.

How Competitors Fight Using Social Media

The most obvious battle to consumers for how competitors fight each other for market share is their marketing spending and gaining news media coverage. Less known are tactics such as lawsuits over IP or improper behaviour, hostile acquisitions and stock manipulations. With the increasing use of social media however, there are more subtle tactics at play. Through our competitor research into Cyberspace and social media, here are some of the more covert tactics companies are using to gain market share over their competitors.

Content Crushing: This is when Company A will create specific content to push down or crush content from Company B in social media and other online places. This isn’t reputation content. It is specially designed and crafted and may employ text, tagged images and videos. Company A spends time to figure out the online marketing tactics and strategy of Company B, then goes after them with targeted content. The goal is to push down the presence of Company B in online channels so Company A looks better.

Resurfacing The Negative: If Company B has had some online reputation issues in the past, then it is a common tactic for a competitor to use techniques that resurface the negative attention, making it harder for Company B to overcome an old sore point. This is most often done with negative content that is less than a year old.

Astroturfing: An old favourite of political parties, especially in the US, it now seems companies are starting to employ the astroturfing strategy. They will hire a PR firm or online marketing agency with the objective of creating multiple “avatars” and accounts online to place positive reviews of their content and negative of their competitor. Although similar to crushing techniques, this is usually employed around an issue or product launch.

These tactics are often carried out by the marketing or communications folks in a company and mostly in larger companies. We’ve yet to see small businesses employing these tactics, but we have seen larger companies do this to smaller companies in regional markets where they may be attempting to win market share. Out of 18 online competitor analysis projects conducted in 2012 and the first quarter of 2013 we saw 10 instances of such tactics being used.

What Can You Do?
Keep an eye on your corporate footprint online. In part reputation management tools can help, but they are designed for keywords around your company in mainstream social media channels only.  You can use free third party tools such as Google Analytics to understand traffic sources and Google Trends to look for associative content. It is not always easy to spot these activities and some understanding of forensic analysis and open source intelligence gathering and analysis is needed. With some effort and training, your company may be able to protect itself better.

The Top Odd Social Media Research Requests

We’ve completed over 280 and research projects for clients now in sectors covering healthcare, oil & gas, non-profits, governments, tourism and more. Along the way, we’ve received some strange requests for research, investigations or doing other analytical work…keeping in mind our research is all cyberspace focused; social media, news media etc. So we thought we’d share some of the odder requests we get…we shared some a couple of years ago, so here’s the latest.

Is President Obama an Alien?
We had a good chuckle with this one. We can say the request came from the U.S. itself. This person or group, thought perhaps there was evidence online through social media channels or elsewhere, that President Obama is an alien. So after a good chuckle we declined.

Why Isn’t My Cat Popular?
This lady had spent a fair bit of time building up her cat’s profile on Facebook and wanted to start “tweeting” on behalf of her cat. She only had a few hundred “likes” on Facebook and felt her cat was very funny and cute and deserved more followers. She wanted to know what the problem was – with people. Moved right along on that one…

Strategy for Selling Weed Online
Via an anonymous email, this person wanted some research into the best ways to sell marijuana via social media without being caught by the police. That person was smart to use an anonymous email address at least, not so smart on the request point.

Will Pay Based on The Riches We Shall Make
We get a few of these in varying flavours every year. Some person has invented something or come up with a great marketing idea. If we’ll do the market research and help them with a social media strategy, they will pay us vast sums of money from the riches they will make…surefire guaranteed success! Uhm, pass…

Can We Delete Our Competitors Social Media Content
Yes indeed. We have a magic wand to wave at the mystical Web and all you’re competitions content will be wiped away in an instant. This was a good chuckle for the team indeed. And a reminder to anyone that no, content cannot be deleted unless every server it is on in the world deletes it or shuts down.

Heartbreaker: Could We Find a Missing Person?
We actually wish we could. It would be a great service. This was a hard one to take from an obviously distressed patient. It’s the kind of miracle we would love to be able to perform.

Please Prove Christianity is the Number One Online Religion
Spirituality is, we believe, and important part of human existence. These guys were a tad over the top however, convinced that Christianity was the most popular religion in the world and it could be proved with some online research. We do not conduct any work for any religious groups. Our goal is to ne as neutral as possible.

Unions & Social Media Engagement Ranked

In October of 2011 we introduced our first ranking of the primary unions engagement in social media in America and Canada. Today we provide an update just over a year later. It’s only natural that unions would adopt these technologies – they understand grass-roots organising very well. In the case of AFL-CIO in America and IBEW in Canada, these unions can help businesses, governments and other organisations understand the highly effective use of these tools. Almost all of the unions in the USA and Canada increased their presence in the primary social media channels, although some smaller unions seem to have either not increased their presence or decreased enagagement.

Social Media Use by American Unions
Certainly the AFL-CIO remains the leader in usage of social media, with IBEW close on their heels. The biggest leap forward came from IUPA who seem to have put on a push to engage and consistently update content in social media channels. Interestingly, IAFF declined in overall engagement, but was the only union to decline. Most of the others either made small steps forward or stayed the same. As a union may have stayed the same, it does not mean they didn’t actually progress – they may very well have found that the level of engagement they have works well given available resources and the overall quality.

Social Media Use by Canadian Unions
Canadian unions really jumped in with both feet in 2012 it would appear. ACTRA, representing actors made the biggest leap with content and overall engagement. ACTRA has also been exceptionally good (like IBEW in Canada) at creating content across multiple channels. Both CWA and TWU decreased a fair bit in their engagement. They reduced the amount of content and remain disengaged with online members; this may mean they haven’t yet found operational value to engagement and may not have the financial and human resources. It is not a reflection on the union itself. CUPE and PSAC saw definite gains in their use of social media as well.

Summary of Social Media Use by Unions
What we can definitively see is that unions have understood the power of these tools above many businesses and governments. They have set social media policies and internal governance in their use of these tools and are effective in their implementation. They also excel at engagement with their members, enabling members to share and upload their own content such as videos and images. The main form of content unions have found works (we estimate) is video and images, of which extensive use has been made. Another important aspect to recognise here is that unions understand that social media are not just about kids, since their members are skilled working adults.

To assess use, we first collected data from across all unions in the US and Canada. From here we parsed down the data and analysed which unions a) used the most channels, b) what was their influence and authority (our own algorithms and 3rd party tools such asKlout for verification), c) frequency of communications and d) participation with audience. These primary points were compared between 2010, 2011 and 2012 (30 November.) There was statistical variation allowance for populations in each country and unions size to enable more accurate comparions. Based on the above criteria, we assigned a “rank” from 1 to 9 with a 9 being very engaged and 1 being hardly engaged at all (perhaps just 1 or social media channels with little active use.) The data provided herein is the aggregate of that collected for client research projects and does not provide confidential information given to clients.

Note: There are other unions that are engaged in social media channels. We assessed the most prominent unions in terms of volume of content, overall engagement and presence in cyberspace (not just social media.) If you think we missed something, let us know.