- Practice Areas Broker Misconduct Pump and Dump Schemes
Our Pump and Dump Scheme Lawyers Can Help You Recover Your Losses
Pump and dump schemes can leave unsuspecting investors with significant losses. If you believe you may have fallen victim to a scheme, it is important that you speak with a pump and dump lawyer about your legal rights immediately. You may have options to recover your losses, but you likely need to act quickly to preserve any hope of a financial recovery.
Our lawyers represent investors who have lost money in pump and dump schemes nationwide. Pump and dump schemes are illegal, and the individuals who perpetrate these schemes can face severe penalties under federal law. However, criminal prosecution does not result in full restitution of the victims of the fraud. Victims must separately pursue civil lawsuits for securities fraud, and they must engage experienced counsel to fight for the financial compensation they deserve.
In some cases, investors who lose money in pump and dump schemes can also pursue claims against their brokers and advisors. If your broker or advisor steered you toward a pump and dump scheme, you may be entitled to recover your losses in FINRA arbitration. When you contact us, our pump and dump scheme lawyers will thoroughly assess your legal rights, and we will pursue all available claims on your behalf.
Are Pump and Dump Schemes Legal?
A pump and dump scheme is a type of market manipulation scam. The perpetrators of the scam work to artificially raise the price of a stock, and then they sell their shares to unwitting investors before the price comes crashing back down.
Pump and dump scams typically target small-cap stocks, also known as micro-cap stocks or penny stocks. The perpetrators will make false, misleading and exaggerated claims about the company’s prospects and the stock’s potential rise. Then, once demand reaches a peak, the perpetrators sell. They then stop the fraudulent promotions, and the stock’s price re-settles somewhere around its per-share price before the pump and dump scheme. At this point, investors who purchased the stock at the “pumped up” price are left with substantial losses, and there is virtually no chance that the stock’s price will ever rise to the level that they can break even.
The individuals who perpetrate pump and dump schemes could be company insiders, but these schemes are often perpetrated by people who don’t have any relation to the company at all. Instead, they simply use the power of influence, promotion and fear of missing out to exploit investors via social media, forums, message boards, and other online platforms.
How to Spot a Pump and Dump Scheme
There are several ways investors may be able to identify a pump and dump scheme—whether before investing or after losing their money unexpectedly. Some common red flags for pump and dump schemes include:
- The source of the information is anonymous or non-authoritative. If a company insider (or purported company insider) is pumping up the company’s own stock price, this is a major red flag. Likewise, if the promoter is anonymous or is not an authoritative and respected voice, this should be cause for concern as well.
- Media outlets aren’t covering the price spike. These days, news of price spikes in the stock market spreads quickly. So, if media outlets are not covering a particular price spike, there is a good chance that there is a good reason why.
- You can’t find much information about the company online. Investors should always do their own thorough research before buying a company’s stock. This is especially true for micro-cap stocks. These stocks trade on the over-the-counter (OTC) market rather than major exchanges like the NYSE and NASDAQ; and, as a result, they are not subject to the same disclosure requirements and oversight. If you cannot find enough information to make an informed decision about investing, this could be a sign of fraud.
- The promoter is using high-pressure sales tactics. Like many other types of investment fraud scams, pump and dump schemes often rely on high-pressure sales tactics. In the stock market, claims of “can’t miss” and “limited time” opportunities are almost always fraudulent.
- The investment opportunity sounds too good to be true. Likewise, if a hot stock tip sounds too good to be true, it probably is. A penny stock company with a break-through technology poised to start trading at $500 per share sounds good, especially if you can get in on the ground floor. But, the reality is that these types of opportunities are extraordinarily rare; and, again, if it’s that big of a deal, you wouldn’t just be hearing about it from some relatively obscure online source.
Other Red Flags That May Indicate a Pump and Dump Scam
Along with these red flags, our pump and dump schemes attorneys notice that these scams often involve the same types of market activities and marketing practices. While the following are not necessarily indicative of a pump and dump scheme, they should give investors pause—especially when paired with the red flags we just discussed:
- Wash trades, match trades and stock splits
- Misleading press releases, website information or social media posts
- Sudden aggressive marketing campaigns focused specifically on promoting a company’s stock
- Unregistered stocks or initial public offerings
- Brokers “selling away” (selling a stock not offered by the brokerage firm)
What Laws Do Pump and Dump Schemes Violate?
Fortunately, there are several laws and rules that protect investors who lose money in pump and dump schemes. As a result, if you believe you may have fallen victim to a pump and dump scheme, you should talk to a lawyer promptly. Some examples of laws and rules that protect investors in these cases include:
- FINRA Rules 2020, 2210 and 3040
- Rule 10b-5 under the Securities Exchange Act of 1934
- Section 17(a) of the Securities Act of 1933
Talk to a Pump and Dump Lawyer at Zamansky, LLC Today to Discuss Your Potential Lawsuit
Did you lose money investing in a pump and dump scheme? If so, our pump and dump lawyers may be able to help you recover your fraudulent losses. For a free and confidential consultation, call 212-742-1414 or get in touch online now.
