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15 Feb 2021

Ever heard of the South Sea Bubble or the Wolf of Wall Street? 300 years between the two but they were still the same schemes – the pump and dump. Let’s have a look at the infamous method so you can keep your assets safe, using our solicitor for fraud the next time these ‘grandfathers of stock manipulation’ appear.

If you believe you have been a victim of a pump and dump scheme, contact us and ABV Solicitors. Our fraud solicitors can guide you throughout the reporting process and maximise the chances of a successful prosecution and compensation.

The farce starts with a stock, how legitimate the business behind the stock is doesn’t matter but is often it is worthless. A group of co-conspirators will hold a sizable percentage of the stock, buying it cheaply before it has been publicised. Then, stock promotion begins as intensely as possible; when the prices rise, they sell the shares on mass, reaping in the profit and crashing the stock price. We will now further go into the details of the scheme, and what you need to look out for.

Features of the scam

The scam relies on an overly opportunistic value of the stock and the idea that it has explosive growth potential. In short, suspiciously good returns are promised. Unorthodox communication methods are important; there seems to be genuine wide-spread interest in the stock and all this positive news is not coming from one source in conspirators, so anonymous communication methods are prefered. This used to be cold calling, but in the online world Whats-App, Discord and Telegram are used.

Social media has been particularly useful as a method of generating rumours and using bot operated accounts to share or re-tweet false information.

Low-liquidity assets

The more of a stock which exists, the harder it is to manipulate. Although it has been attempted, it would require a very large start-up cost to operate the scam. Therefore, low liquidity assets are used; very low capacity stocks, new cryptocurrencies or an IPO. Their small volume means less new investors are required to push up the price.

The next big thing get in early before….

The core message to investors is there is going to be a big price rise due to ….. a new product launch, a public announcement or a serious scandal that is about to break, and we want you to take part in the windfall. If such information was true, it would either be a goldmine that would not be shared due to insider information and illegal to use for trading.

How to avoid the pump and dump pitfalls

If you’re trading in an industry, you will be able to see when something is too good to be true. If you wish to get into trading seriously, start by learning the ins and out of an industry. If you are looking to be a hands-off investor, find a stockbroker or an investment manager. But if you’re trying to avoid fees and make a large one-off investment, it may be wise to book an appointment with one of our fraud solicitors who can ensure your investment is legitimate.

If you believe you have been a victim of a pump and dump scheme, contact us and ABV Solicitors. Our fraud solicitors can guide you throughout the reporting process and maximise the chances of a successful prosecution and compensation.