Pump and dump scams

Frequently asked questions

• Are pump and dump scams linked to boiler room fraud?

  “Pump and dump” is where scammers use illegal market manipulation to artificially boost the price of their own shares in order to then go on and sell them at a profit. Pump and dump scams are just one of the many cryptocurrency scams due to the lack of market regulation. In a typical pump and dump scam, scammers will use cold-calling techniques or contact victims on social media and then try and persuade them to buy, usually with the promise of securing a high guaranteed profit. Once the price starts to increase, the scammers will then sell their shares, leaving investors now having almost worthless stocks.

• Pump and dump schemes

  Pump and dump schemes are, sadly, becoming more and more predictable as an NFT scam in the NFT world. This term refers to people who buy a large selection of NFTs or cryptocurrencies, which then artificially drives demand. Then, once they are successful, these scammers cash out when the prices are high, which leaves those who weren’t involved with worthless assets.

  To avoid pump and dump NFT scams, always ensure to check the history and records of whichever NFT project you are interested in. This is where the transparency of the blockchain come’s in handy. Follow the project on Twitter, as for a project to have lasting value, there should be a number of interested investors and collectors, then use this information to decide whether to go ahead or not with your NFT investment.

• How long does a pump and dump scam last?

  Usually, a pump and dump scam will only last a week however, some can be longer if the fraudster(s) wants to increase their profits even further. However, the longer they leave it, the more likely other investors will become aware that this is a scam and will cash out before they lose too much money.

• How to avoid a crypto pump and dump scheme?

  Crypto pump and dump schemes can be very tempting for a crypto investor who is a beginner. However, there are a few things you can do to avoid this type of crypto fraud. Some of these things include:

  Before investing in any crypto coin, you must conduct sufficient due diligence before you invest. This includes researching the company’s background, where they see themselves shortly, market capitalization and finally, trade volume. Researching news articles about the company/ crypto is also a great way to ensure it is legitimate.

  Analyse the volume and price movements of the crypto coin on a more technical scale. If there are moments when there is a significant increase in both volume and price, then large drops straight after, you know something isn’t right.

  Don’t invest in a crypto coin because you have a fear of missing out. If you find yourself investing in both stocks and crypto coins because others are doing it, you should not invest your money. Conduct your own research to see whether it is a valuable investment.Monitoring news and market trends is essential when you are investing. Doing this will help you avoid pump and dump scams as well as identify them before they pump.

• How to not become a victim of pump and dump fraud?

  As mentioned previously, a pump and dump scam will usually occur within a week. A good way to identify pump and dump fraud is by looking at how long it has been increasing in value. If it has been over a couple of weeks or a month, you can be confident it is a scam. Additionally, another way to check the legitimacy of a stock/crypto coin increasing is by reading the news and seeing if credible sources report anything positive about the investment. If you struggle to find anything positive, it is likely a pump and dump scam.

• How to spot pump and dump scams

  When investing, you must be aware of the different types of trading scams. With it being easier to invest your money, it is also easier to get scammed. Pump and dump fraud comes in many forms and some are easy to spot.

  If someone you do not know has reached out to you to invest in a stock or cryptocurrency, this could be a pump-and-dump fraud. This could be through private messages or someone who has replied to a post of yours in a forum.

  Something else you must be wary of is false promises with pump-and-dump scams. People will promise huge returns and insist you must invest as soon as possible to “maximise your profits”. It is a common tactic from a pump-and-dump scammer.

• Is a pump and dump scam illegal?

  Yes, pump and dump scams are illegal as they take advantage of other people’s money. The fraudster will promote the stock or crypto coin, even though there is no proof it will be a successful investment. That fraudster will also invest a considerable amount into the investment, changing its value. This attracts more investors to invest which will continue to increase the value. Once the value increases, the fraudster will cash out on their investment, leading to the value dropping and them leaving with the profit. Usually, this would need a large investment from multiple fraudsters so they can generate enough profit from their investment.

• Other types of pump and dump scams

  Although forums and social media platforms are the more commonplace for these types of scams, they can also occur on trading platforms. These criminals will heavily invest in a stock that is low in value and once the value has increased significantly, people will notice it. That will attract other investors to invest their money into the stock, gradually increasing the price. Once the investment has increased enough, the perpetrator will cash out on their shares.