In the era of social outreach, online forums and shiny finfluencers, pump and dump schemes are easier than ever to perpetrate – and to fall victim to.
Here are our tips on what to look out for and how to hopefully avoid being caught in this activity.
What is pump and dump?
A 'pump and dump' scheme is where a person buys shares in a company and starts an organised campaign to increase (or 'pump') the share price. They then sell (or 'dump') their shares and make a profit, while the other shareholders ride the fall and are out of pocket.
People running a pump and dump often use social media and online forums to create a sense of excitement about a stock or to spread false news about the company's prospects. This excitement and interest artificially drive the price up as they lure investors into the pump.
Pump and dump schemes – under various names and formats – have been around for as long as public investments. But social platforms and other online forums have given these schemes greater reach.
Here’s what a pump and dump scheme might look like on a social platform:
How to recognise a pump and dump
The underlying tactics for a pump and dump scheme are like investment scams more broadly. Watch out for:
- Paid advertising. Spruikers might pay big money for advertisements to appear high in online search results. They also advertise through social media.
- A rush of finfluencer endorsements. Fake finfluencers may start spreading misleading or plain wrong information about a particular investment, maybe citing inside information. The coordinated activity can make it seem like investor hype.
- Unsolicited marketing.You might receive an unsolicited email or phone call. Be wary of anyone spruiking the attractiveness of a specific investment and creating a sense of urgency.
- Forum comments. There might be a rush of commentary about a particular little-known investment across multiple online forums.
- Strange market behaviour. You might see a sudden price increase or spike in an investment that is new or not usually volatile.
Overall, the objective is to create in you a sense of urgency, a feeling of having special inside information, and a fear of missing a great thing.
How to protect your money
Pump and dump schemes can look very convincing. So, before you invest your money, check basic facts about what you’re investing in and who with. Follow our stop, check and protect tips at check before you invest.
If you suspect a pump and dump scheme, act quickly to report it to SCAMwatch at the Australian Competition and Consumer Commission (ACCC), the ATO or ReportCyber.