Do you recognise the signs of pump-and-dump fraud?
Keytrade Bank
keytradebank.be
September 29, 2025
(updated October 02, 2025)
3 minutes to read
Buy now, because this share's going to soar! You may have already seen similar messages in an advert on Facebook or as a subject on a stock market forum. It may sound like a brilliant tip – but in reality it's nothing more than a modern iteration of an old stock market scam: the pump and dump.
Pump-and-dump schemes operate on a straightforward principle: fraudsters spread false or misleading information to incite a buying frenzy. This pushes the share price up, after which they sell off their own shares at the artificially inflated price.
In the past, such practices were run from dubious call centres. Salespeople with slick pitches and scripts persuaded individuals to invest in worthless stocks with promises of spectacular returns. The formula was the same as it is now: once the price had been artificially inflated by the huge pressure to buy, the fraudsters sold their holdings and left their victims with worthless shares. Films such as Boiler Room and The Wolf of Wall Street provide an intriguing glimpse into the practice for the enthusiasts among us.
From phone calls to TikTok
Today, it is far more subtle and quicker, taking place through WhatsApp groups, Telegram channels, Reddit forums and even TikTok videos. The dynamics remain the same, but it takes place on a much larger scale. A single post can go viral and persuade thousands of investors to jump on board in just a few hours.
The modern pump and dump often begins entirely innocently. A Facebook ad promises exclusive investment tips, a Reddit post on r/pennystocks praises a 'hidden gem', or an influencer speaks highly of the 'next Tesla'. Once victims express an interest, they are invited to join a private WhatsApp group.
With names such as US Stock Investment Group or Wealth Trading Circle VIP, the groups are carefully orchestrated and resemble legitimate trading communities. The groups typically consist of 30 to 50 members, with a so-called stockbroker or another specialist taking the lead and sharing 'insider information' about a stock.
The problem is that the conductor and their accomplices use fake profiles, and the only real people in the group are the future victims. The victims are gradually steered towards a single message of buying shares in a particular company in large numbers. The organisers claim to have exclusive information about an upcoming collaboration or a 'unique opportunity' that is not to be missed. The pressure ramps up, others in the group start buying, the price goes up, the fear of missing out kicks in, and new buyers come into the picture...
When the bubble bursts
The consequences can be both spectacular and catastrophic. In July 2025, thousands of investors saw their investments nosedive. Concorde International, Ostin Technology, Top KingWin, Skyline Builders, Everbright Digital, Park Ha Biological Technology and Pheton Holdings – all small Chinese stocks listed on the US stock exchange – fell by more than 80% after being widely promoted on social media (source:L'Echo).
Regencell Bioscience, a company operating at a loss, saw its value skyrocket by 60,000% (!) to reach USD 38 billion temporarily in an extreme fluctuation that is impossible without manipulating the market. The price then plummeted once the organisers sold their positions and stopped promoting the share.
Why small-cap stocks are the main target
Pump and dump is a phenomenon rarely seen in large-cap stocks. Unknown small-cap stocks are the main target of pump-and-dump schemes, as they often have low trading volumes (easy to manipulate), limited analyst coverage (less opposition), complex corporate structures (difficult to understand), and are mainly listed on the US stock exchange (accessible to international investors). This means you don't need thousands of new buyers to inflate the price quickly.
Once sales volumes begin to wane and the number of buyers placing orders drops, fraudsters offload their shares for substantial profits, leading to significant losses for unsuspecting investors who are unable to sell their shares in time.
Belgian investors are also being targeted, too. Although many pump-and-dump schemes focus on US penny stocks, fraudsters are also trying to target victims in Belgium through social media and fraudulent trading groups.
You should remember, however, that not all investors are naive. Some investors intentionally seek out these schemes to speculate and ride the wave as the price surges, even though they are exposed to the risk of exiting too late and losing money. Taking part in a pump-and-dump scheme may not only result in financial loss, but it is also illegal. Pump-and-dump schemes are classed as market manipulation, a form of market abuse. The FSMA and the public prosecutor's office can impose heavy administrative fines and even penal sanctions on anyone who knowingly engages in such practices.
Different to meme stocks
Pump-and-dump practices also raise the question of how you can spot this type of fraud compared to an orchestrated stock market rally, as we saw with meme stocks such as GameStop or AMC.
The difference often lies in transparency and people's intentions. At GameStop, Reddit users were very open about sharing their strategy, with the aim of triggering a short squeeze. A short squeeze occurs when a share price rises sharply, forcing short sellers (investors betting on a fall) to close their positions at a loss by buying back the share, which causes the price rise to surge further.
Conversely, pump-and-dump schemes involve manipulation behind the scenes, including false profiles, misleading information and a small group of insiders pulling the strings.
Red flags and protecting yourself
We've outlined a few red flags to watch out for to guard against this type of fraud:
1. Promises that sound too good to be true
Promises of guaranteed high returns, quick profits or 'exclusive tips' are classic warning signs. Legitimate investment advice never comes with guarantees. If you're unsure, consult the FSMA warnings and/or double-check information listed elsewhere on trusted websites.
2. Urgency and pressure
Messages that urge taking immediate action ("buy now before it's too late") are a feature of pump-and-dump schemes.
3. Unknown small businesses
Micro-caps that are promoted all of a sudden without clear, fundamental reasons should raise suspicions.
4. Promotion on social media
Serious financial advisers never discuss investment recommendations on WhatsApp or Facebook. If you only come across information on (obscure) forums, it is often a red flag.
And if an investment doesn't feel quite right, this is often a sign to remain particularly vigilant. Examples include shares you're not familiar with, companies that don't publish annual reports, businesses that have very low levels of liquidity, or stocks that receive little attention from analysts. All these signs indicate an elevated risk – and therefore could involve pump-and-dump practices.
Finally, the future may well come with new risks. Fraudsters are already using AI to create convincing texts or deepfake videos in which so-called experts recommend stocks. Automated bots can also spread thousands of messages at once to artificially generate hype. The scale and speed of such attacks will render investors even more vulnerable. The key message here is that investors should remain vigilant.
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