Pump and Dump Scams
What is a "Pump and Dump" Scam ?
A "pump and dump" scam is a fraudulent scheme designed to boost the price of a stock or security through fake recommendations or other artifices. These recommendations are often based on false, or misleading statements. Nowadays, there is often a romantic component to this type of scam, and is a variation of the typical romance scam.
Modern Day Version
Historically, "pump and dump" schemes were done with scammers cold calling their victims. Nowadays, victims of pump-and-dump scams are usually recruited online and typically from social media or dating websites.
Fraudsters will often approach their victims through social media (Facebook and Instagram) and online messaging platforms (e.g., WhatsApp, Line, WeChat). Typically. they profile their victim first and then tailor their initial approach accordingly (e.g., romantic, friendship, business opportunities).
Other fraudsters choose instead to advertise on forums and over social media (Facebook, Instagram), claiming to be a stockbroker, a portfolio manager, or working for a hedge fund, and having "unique" information about a listed company.
Fraudsters have also infiltrated dating applications (e.g., Tinder, Skout, Coffee Meets Bagel), often posing as a young good-looking Chinese man or woman (“Fake Romantic Partner”) who is looking to meet successful like-minded professionals. Akin to romance scams, the Fake Romantic Partner serves three purposes:
(a) identifying wealthy and influenceable potential victims;
(b) establishing trust; and
(c) misdirect, distract and influence the victim whenever necessary.
Invariably, the conversation between the Fake Romantic Partner and his (or her) victim will, at some point, revolve around stock trading and investment opportunities. He (or she) will discuss his (or her) own success investing and will tell the victim that he or she has some unique information about a given listed company. Usually the company involved is a small-cap company listed on the Growth Enterprise Market (GEM) board in Hong Kong (or its equivalent in other market outside of Hong Kong).
The fraudsters will invariably induce the victim to pay his investment money into the bank account of one or several unknown third parties (individuals and companies) often inventing very dubious reasons as to why the payments need to be made that way. Early on, the fraudsters will often request that the victim invest a small amount of money to show how trustworthy their platform is. After great gains are observed by the victim, the fraudsters will then ask the victim to invest greater sums of money. Thereafter, whenever the victim would request to withdraw sums of money from his fake brokerage account, the fraudsters would invent reasons as to why it is not currently possible and would ask the victim to invest more to take advantage of the latest opportunities.
It usually ends with the victim realising that he has been defrauded and the fraudsters stopping all conversations once confronted with the truth.
Keep a Record of Everything
Anything connected to the scam, keep a record of it. The police often relies on the chat records, telephone number, the screenshots of the website, and documents sent during the course of the scam to build their case against the fraudsters.
Report to the Authorities only the Relevant Parts
Very often, we see police reports that have been filed by clients that are incomplete; they focus on all the wrong things that not particularly relevant to your case. We have prepared a guide on how to file an online report with the Hong Kong Police.
Time is of the Essence
It is important not to waste time and make sure that the scam is reported immediately to the relevant authority.
If you have additional questions which are not addressed here or wish to schedule an appointment to discuss your case, please contact us by telephone on +852 2176 4777 or by email at [email protected].