Information from FBI.gov: If you’re not familiar with “pump-and-dump” fraud schemes, it might be a good time to get educated.
How do these scams work?
First, there’s the glowing Press release about a company, usually on its financial health or some new product or innovation.
Then, newsletters that purport to offer unbiased recommendations may suddenly tout the company as the latest “hot” stock. Messages in chat rooms and bulletin board postings may urge you to buy the stock quickly or to sell before the price goes down. Or you may even hear the company mentioned by a radio or TV analyst.
Unsuspecting investors then purchase the stock in droves, pumping up the price. But when the fraudsters behind the scheme sell their shares at the peak and stop hyping the stock, the price plummets, and innocent investors lose their money.
Fraudsters frequently use this ploy with small, thinly traded companies because it’s easier to manipulate a stock when there’s little or no information available about the company. To steer clear of potential scams, always investigate before you invest.
What steps can you take?
- Don’t believe the hype
- Find out where the stock trades
- Independently verify claims
- Research the opportunity
- Watch our for high-pressure pitches
- Always be skeptical
For more information, go to FBI.gov.
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This column is provided for general information purposes only. Please check with your local law enforcement agency and legal professional for information specific to you and your jurisdiction.
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