Victim of a Pump and Dump Scheme? We Can Fight for You.
Pump and dump schemes can be one of the most traumatic experiences for investors because they think they’ve got their hands on the deal of the century but end up enduring a harrowing experience as they witness their investment rapidly sink until it’s worthless.
Schemes, whether ponzi or pyramid schemes, of this nature are unfortunately all too common, and very costly. The terrible thing about pump and dump schemes is that they result in damaging losses to victims. Investors end up losing their hard-earned money in these schemes, and for an unfortunate few, it results in the loss of their life savings.
What to Do as a Victim
The penalties of a pump and dump scheme are substantial, including jail time and financial hits for the convicted. The prosecutor, however, must prove beyond a reasonable doubt that the crime was committed by that person or organization and that as a result, you suffered losses.
At Weltz Law, we believe no person should have to suffer the damaging loss that pump and dump schemes often bring. If you have lost your investment in a pump and dump scheme, then please contact us immediately so our legal team can assess all of your options. While it is notoriously difficult to recover one’s losses in scams such as these, it may be possible to recoup your loss with our firm in your corner.
What Is a Pump and Dump Scheme?
Pump and dump schemes are scams that leverage an investor’s interest in seemingly well-performing securities. The scams generally involve two stages: the pump and the dump. Together, they operate to falsely inflate the price of stocks, get investors to buy and then offload their holdings before the value crashes.
The Pump
The pump part of the scheme begins with spreading false information about low-priced stocks held by them. Ordinarily, these stocks won’t be traded on established exchanges like the New York Stock Exchange. The schemes tend to only work on small to micro-cap stocks that are often traded over the counter. The company stocks also tend to be very illiquid and prone to sharp price movements.
The fraudsters start their scam by spreading overly positive news about the stock, usually in conjunction with an insider at the company. They do this through a combination of methods include messages on online platforms and even emails.
Along with all this positive news, they will purchase the securities en masse. This increases demand and trading volume in the stock, leading to a sharp rise in its price. This in turn creates further demand until the price of the stock is driven to its peak.
The Dump
The dump part of the scheme occurs when the stock is right at its peak. The fraudsters will offload their significant holdings onto the unsuspecting market. Their initially worthless shares will now be worth multiple times their initial value.
Of course, soon enough, the hype around the securities will turn out to be just that and investors will start to sell. Just as rapidly as it rose, the value of the shares will crash almost overnight and investors will lose massively.
How to Identify Pump & Dump Schemes
The best way to deal with pump and dump schemes is to avoid them at all costs. However, this can be difficult because they are not always easy to identify. Regardless, if you pay close attention to the circ*mstances, you should be able to spot a few suspicious points. The following tips can help you avoid pump and dump schemes:
- Pay Attention to the Source: You should be very suspicious when someone gives you tips about “hot” stocks over social media. Be wary of emails that constantly invite you to invest in “fast-selling” stocks that don’t seem to have any downside. These usually come from paid promoters or insiders at the company. This means the message may look genuine, but that’s exactly how it’s meant to look. Check to see if the communications provide an objective assessment of the stock. If no mention of risk is made, it is likely to be a scam.
- Investigate the Shares: Don’t take communications at face value. Find out more about the stocks that you are being invited to invest in. Do a Google check on the owners or the company, you’ll be surprised what turns up. See if the company is registered in the U.S. Many pump and dump scams originate through reverse mergers that allow private companies located outside the country to access U.S. markets.
- Check for Where the Stock Trades: As mentioned above, stocks used in pump and dump schemes are rarely traded on major exchanges. Instead, they are usually thinly traded, small-cap stocks that tend to be traded on OTC platforms.
- Request and Read a Prospectus: If what you see seems convincing, ask for the company’s investment prospectus before you make any decisions. You can check to see if the information on the prospectus tallies with what is on the company’s SEC filings.
- Be Aware of Rapid Rise: If you have been able to find out information about the company and the stock, you should also check its history. If the stock has experienced long periods of slow trading and suddenly sees rising volumes of trade, you should be wary. This can indicate an attempt to artificially inflate the stock’s price.
Who Can Be Held Responsible for Pump & Dump Schemes?
Fraudsters who set up pump and dump schemes usually take steps to cover their tracks and spirit away with their ill-gotten wealth. This generally makes it difficult to find the responsible parties and hold them accountable. Notwithstanding, there are still situations where you might have recourse for compensation. For instance, if company stocks were used in the pump and dump scam, then you can possibly take action against the company to pursue compensation.
Even if the company is now in trouble due to its worthless stocks, it may be possible to petition the court for a winding-up. This basically means that the court can order the company to close business and its assets will be sold to offset claims like yours.
Are You Able to Recover Compensation?
If you suffered financial harm due to a pump and dump, it is vital to confer with a securities attorney to discuss if you can recover compensation. Weltz Law in New York proudly represents parties of all backgrounds in litigation and arbitration hearings, and we will work tirelessly to help you pursue compensation for your losses. Contact us today.
