In a September 2 Alert, FINRA warns that scammers are using messaging app spam-casts to impersonate brokers and tout micro-cap stocks to “pump” their prices, before “dumping” their positions at the top and leaving investors holding the bag. Fraudsters merely are taking advantage of newer cross-platform messaging apps (like WhatsApp) that avoid SMS charges, thus making their spam-casts easier.
In a pump-and-dump scheme, the scammers take a big position, typically in a thinly-traded penny (or “microcap”) stock. Then they tout the stock urgently – often on pretended inside information – in an effort to run the price up quickly. Once it soars, they sell their position at a profit, leaving the new buyers with the losses as the price returns to the basement. It exemplifies the old adage that “fools rush in where angels fear to tread.” The SEC’s short description of pump-and-dump schemes is here.
Two years ago, regulators issued similar warnings about email and social-media abuses for the same purpose.
FINRA’s new Alert is here.