Pump and Dump
TechnologyBit News Today1 min read
These deceptive schemes often target over-the-counter stocks as well as digital currencies and altcoins.
Pump-and-dump schemes are often promoted on internet discussion boards, social media networks and by email spam. Promoters use psychological persuasion and distribute upbeat news across various platforms to urge readers to buy shares quickly.
Many of these fraudulent operations follow a classic pattern. According to the CFTC, some scams circulate fabricated reports claiming a well-known tech executive or investor intends to put millions into an obscure virtual coin. Manipulators also spread rumors and favorable claims across chat rooms, online bulletin boards, and social media platforms. Groups on platforms like Telegram, Reddit, and BitcoinTalk agree to purchase altcoins at a set price and dump them simultaneously when the price peaks.
SEC Enforcement: Pump-and-Dump Scam Activity
The U.S. Securities and Exchange Commission (SEC) is cracking down on these criminal scams. In the Craig case, the SEC charged an individual with manipulating the share prices of two public companies through misleading tweets sent from accounts that mimicked established research firms.
In McKeown and Ryan, the SEC won judgments against a Canadian couple who used Facebook, Twitter, and their website PennyStockChaser to pump microcap stocks before profiting from share sales. In that case against a Canadian couple, the court ordered $300,000 in civil penalties while ordering them to pay a disgorgement of more than $3.7 million for profits gained as a result of the alleged conduct.
Avoiding Pump-and-Dump Scams
Investors can protect themselves from pump-and-dump schemes by keeping a few simple but important guidelines in mind:
Warning signs of potential fraud include unsolicited offers, pressure to buy immediately, pledges of guaranteed returns, and claims that an investment is completely safe.
If you suspect market manipulation, report it to the SEC online or call (800) 732-0330.
