Protect Yourself from Investment Fraud: How to Avoid Being a Victim of a Pump and Dump Scheme

 by: Ivan Cavric  

Pump and dump schemes are a type of investment fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. These schemes often occur on the internet through various forms of communication, including social media and messaging apps.

Pump and dump schemes are illegal and are considered securities fraud by the US Securities and Exchange Commission. They can be harmful to individual investors who may purchase stock in a company that is being pumped, only to later lose money when the price drops after the dump.

Here are some tips to help you avoid being a victim of a pump and dump scheme:

1. Do your own research: Don’t blindly trust recommendations from unfamiliar sources, especially if they seem too good to be true. Instead, take the time to research the company and its financial health on your own. Look at the company’s financial statements, news articles, and analyst reports to get a well-rounded understanding of the company.

2. Be wary of “hot tips”: If someone claims to have inside information about a company or is offering you a “once-in-a-lifetime” investment opportunity, be skeptical. It’s possible that they are part of a pump and dump scheme and are trying to lure you in.

3. Avoid penny stocks: Pump and dump schemes often target penny stocks, or stocks that trade for less than $5 per share. These stocks are often more vulnerable to manipulation because they have low liquidity and are not subject to the same regulatory requirements as larger, more established companies.

4. Watch out for unusual trading activity: If you see a sudden increase in the volume of a particular stock, it could be a sign that a pump and dump scheme is occurring. Similarly, if the price of a stock surges without any clear reason, it could be a red flag.

5. Don’t be afraid to ask questions: If you are considering investing in a company and are unsure about its viability, don’t be afraid to ask questions. Seek out the advice of a financial professional or a trusted investment resource.

By following these tips, you can help protect yourself from falling victim to a pump and dump scheme. Remember, it’s always important to thoroughly research any investment opportunity before committing any money.