Avoiding Pump-and-Dump Scams
While it might be difficult to distinguish a pump-and-dump from enthusiastic, legitimate investment advice, here are ways to protect yourself.
Pump-and-dump stock scams have long been a favored method for financial fraudsters. Despite advancements in technology, the fundamental approach and objective of these illegal practices have remained consistent. These scams typically encompass three primary components: the initial phase (where the perpetrators select their target stock), the promotional phase (where they employ various techniques to elevate the share price), and the final phase (where they hastily sell their stock and profit).
Historically, FINRA has noted that fraudsters often zero in on low-priced, microcap stocks traded on over-the-counter (OTC) markets. These stocks frequently lack substantial publicly available information, rendering them attractive targets for fraudulent and manipulative schemes. In recent years, FINRA has observed a growing trend of fraudsters targeting low-priced stocks, encompassing those that are not classified as microcap, which are listed on national exchanges.
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