Pump and dump: Beware of investment scams surfacing during COVID-19
By ATB Financial 3 April 2020 2 min read
Investment scams, both new and old, can compromise investors at any time regardless of demographics and unfortunately, we are particularly more vulnerable to fall victim during COVID-19. Market volatility, layoffs, debt and financial vulnerability have all increased the threat of investment scams and helped create the perfect environment for deception.
“An investment scam we see time and time again is referred to as a pump and dump utilizing penny stocks, which is where the fraud actor artificially promotes and inflates the price of an owned stock,” says Chris Mochulski, managing director, compliance with ATB Investment Management.
“When it comes to COVID-19, regulators are seeing pump and dump related scams claiming that the products or services of publicly traded companies can prevent, detect, or cure coronavirus, and that the stock of these companies will dramatically increase in value as a result.”
Claimed as high risk by fraud experts, this type of investment scam is very likely to occur and will have an immediate impact on someone’s portfolio.
What does a pump and dump scam look like?
Pump and dump scams are usually nested through internet promotions, including social media, and often take the form of so-called "research reports" that give the fraud actor seemingly legitimate information to make predictions of a specific "target price” for the stock.
Investors are lured with aggressive and optimistic statements through press releases, social media, pop-up ads, emails and other promotions intended to create demand for a company's stock (the pump). Once the share price and volume spike, the frausters behind the scam sell off their shares at a profit, leaving investors with worthless, or near-worthless, stock (the dump).
“You would be surprised at how quickly these things can get established and subsequently disappear off the face of the market with the same velocity, leaving investors wondering what just happened,” adds Chris.
5 things you can do to prevent getting caught up in an investment scam
- Apply rigorous skepticism about any investment offers or promotions that you may read about or be targeted with.
- Utilize official information to research investment opportunities before making decisions. In Canada, SEDAR (System for Electronic Document Analysis and Retrieval) is a secured and regulated database of company information that has been vetted by securities regulators. Here you can review historical financial information, see who is running the company, and what track record they have as a company.
- Email or call the Alberta Securities Commission (firstname.lastname@example.org or 1-877-355-4488). They can assist you with information and would be more than willing to hear about potential scams.
- Practice good privacy protocols. Never share personal information regarding your investment and/or bank accounts with individuals you do not have an existing commercial and regulated relationship with.
- Call your investment advisor to determine the suitability of investments you make, especially during COVID-19. If you do not have an advisor, reach out to ATB Wealth and we will be happy to help.