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How the market can scam you 

Pump-and-dump schemes have been around since the beginning of the securities market.

Focusing on equities listed on popular, well-known exchanges is one strategy to avoid a pump-and-dump operation in the stock market. Why is this the case? The issue is that such exchanges have stringent listing rules and do not allow pump-and-dump schemes to happen. You’re safe if you stick to well-known and extensively used cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), as well as well-known exchanges like Coinbase and Binance. Most exchanges display all of an asset’s orders, as well as the order history. It’s also a wire fraud since scammers utilize email, direct messaging, social media, and phone calls to contact their victims in order to suck money out of them, by pumping the stock.

A pump and dump is a stock market fraud that involves artificially inflating (or “pumping”) a stock price with false, misleading, or inflated price claims. Those who began the crypto talk can profit by raising the price by selling the assets rapidly at a high price (called “dump”).

Simultaneously, the new stock owner is likely to lose a considerable percentage of their investment since the stock price will drop rapidly.

These schemes typically target small-capitalization companies since they are easy to control and do not require a large number of new purchasers to propel a stock higher.

Under securities legislation, this is an unlawful plan that might result in the fraudsters paying hefty fines. “To gain money or property by means of any inaccurate statement of a substantial fact or any failure to state a significant truth,” according to The Securities Act of 1933.

Unfortunately, while this works wonderfully for normal equities, it has yet to be applied in the cryptocurrency area.


How to recognize the scheme

Cold calling was used to set up Pump and Dump schemes. But, now that we have the Internet, these criminal schemes have evolved to include email, spam, and fake news.


In most cases, criminal actors send out messages on the internet urging investors to acquire stock as soon as possible, claiming to have inside information about an impending stock price increase. When purchasers fall for the bait, the con artists sell their assets right away, causing the price to plummet and new investors to lose money.

Most famous Pumps-and-Dumps versions.

The ‘traditional’ Pump and Dump system.

The strategy revolves around the misrepresentation of facts about a firm and its activities. It can include stock presentations over the phone, phony news releases, and the dissemination of “inside” information that might inflate the asset’s price and entice investors to acquire it.


Pump and dump arrangement in the boiler room.

A boiler room is a small brokerage business with certain brokers that use deceptive sales tactics to sell investors risky assets.

Those dishonest brokers sell penny stocks that the firm purchases or sells as a market maker over the phone. In order to raise their stock, brokers in the Boiler Room must sell as many shares as possible. The corporation sells its shares for a profit as soon as the price rises.


A “Wrong Number” strategy has been devised.

This one is very new, and it works by delivering voice messages to those who provide investment advice to a “friend.” If the individual who receives the message believes it occurred to him by chance, they may fall into the trap by buying in the stock suggested by the message.


How to get out of the scam

Forewarned is forearmed, as the saying goes. So, what’s the best way to prevent all of the above schemes?

First and foremost, don’t overlook the DYOR notion, since anyone who knows how to code may easily create new tokens. If you find a new currency that promises you a Lambo, do your homework to avoid pump-and-dump schemes. If it’s an ICO (initial coin offering), the currency should come with a “white paper” that contains a lot of information about it.

Don’t get FOMO; cryptocurrency is still interesting, but it’s also risky – there are a lot of fraudsters out there, and they know you’re anxious for cash. That’s why the bad guys are employing a unique strategy to influence your decision to invest in cryptocurrencies.

Scammers may be found on your favorite social media platforms, such as Discord, Twitter, Instagram, Telegram, and others. Be wary of anyone who starts talking up a newly issued token; there’s a good chance they’re pushing a fraud.

Be skeptical of crypto experts you follow who seldom discuss cryptocurrencies but suddenly start promoting a token. Find a real specialist if you need financial help.

If the token is still available but the project’s development appears to have frozen, it’s best to stay away. If the project has no clear objective, claims unrealistic advantages, has a well-thought-out development path, or is linked to prior bad actors, these are all warning signs.

It is also important to have a place where you can store your crypto assets. Use well-known, secure, and self-custodial wallets, such as SimpleHold.io, Metamask and etc. It might be a good idea to avoid using custodial wallets. 

Last but not least, remember the golden rule: “Don’t invest more than you’re willing to lose.” You must accept the idea that if you make an investing error, you will lose all of your assets.


To conclude

So, while fraud and its derivatives are nothing new or strange, you must be equipped with information and tools that will help you keep the crypto safe and secure. Consider using SimpleHold wallet as your daily wallet and be safe of the crypto you keep

If you follow the advice we’ve given you here, you’ll be able to avoid the pump-and-dump scams that are popping up all over the place.


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SuperCryptoNews is a global leading blockchain and crypto news provider, covering daily news on the latest tech and trading developments in crypto. We bring you expansive crypto news coverage especially in Asia, with a focus on Singapore, Thailand and Southeast Asia.

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© Copyright of Novum Global Consultancy Pte Ltd {2020, 2021}. All rights reserved.

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