Concerns grow over the increasing threat of investment fraud
targeting retail investors. Addressing this issue on LinkedIn today (Monday),
the CEO of Webull Securities (UK), Nick S., highlighted that pump and dump
schemes are becoming more complex and causing greater financial harm.
While the tactic is not new, he noted that recent versions
involve more sophisticated methods, making them harder to identify and more
damaging when they occur.
Two enforcement cases highlight the scope of the problem. In
2016, the
U.S. Securities and Exchange Commission sued a UK-based trader for hacking
brokerage accounts and manipulating stock prices, causing losses of nearly
$300,000.
More recently, four
individuals in Australia pleaded guilty to coordinating a pump and dump scheme
via Telegram, targeting penny stocks between August and September 2021. The
group now faces potential prison sentences and million-dollar fines.
How Pump and Dump Schemes Work
Nick S., CEO of Webull Securities (UK), Source: LinkedIn
Pump and dump schemes involve artificially inflating the
price of a stock to attract buyers, before rapidly selling off the holdings to
profit from the surge. Once the stock is dumped, its price collapses, often
leaving late investors with heavy losses.
Changing Tactics in Fraud
Nick S. said recent cases show a more advanced pattern of
fraud. Criminals are reportedly using credentials stolen through phishing
attacks to access brokerage accounts.
They then target thinly traded
NASDAQ-listed stocks, accumulating large positions without drawing attention.
Once they control enough shares, they promote the stock on platforms like
WhatsApp and other social media sites.
In these promotions, fraudsters pose as analysts claiming to
have insider information. They push stories about upcoming medical approvals or
company takeovers to build hype. As the stock price climbs—from, for example,
$2 to $10—retail investors are drawn in, believing they are buying into a
regulated and legitimate opportunity.
“Victims see “regulated” stocks on legitimate
exchanges and assume safety,” Nick S. wrote. “But they don’t realise the stock
values themselves are entirely unsecured.” According to him: “When the dump
happens, prices can fall 90% in seconds and life savings can vanish instantly.”
He said some investors have lost their life savings in
recent weeks as a result of these schemes.
Source: LinekdIn
Calls for Stronger Regulatory Action
Nick S. also criticised the current state of investor
protection and awareness. He said traditional warnings and educational efforts
have failed to prevent the spread of these scams. “The warnings are too niche,
easily overlooked,” he said, adding that it can be extremely difficult to
convince victims they are being misled.
He called on the Financial Conduct Authority (FCA ) to take
stronger action. He suggested that brokers should be allowed to block access to
suspicious stocks without fear of backlash from users or the media. He also
proposed the creation of a daily intelligence-sharing system between brokers
and regulators to support faster responses and prevent harm.
“We’re committed to being part of the solution,” he said of
Webull UK’s stance, “but this requires industry-wide collaboration and
regulatory support.” He concluded by asking the public for thoughts on further
measures to protect retail investors.
Concerns grow over the increasing threat of investment fraud
targeting retail investors. Addressing this issue on LinkedIn today (Monday),
the CEO of Webull Securities (UK), Nick S., highlighted that pump and dump
schemes are becoming more complex and causing greater financial harm.
While the tactic is not new, he noted that recent versions
involve more sophisticated methods, making them harder to identify and more
damaging when they occur.
Two enforcement cases highlight the scope of the problem. In
2016, the
U.S. Securities and Exchange Commission sued a UK-based trader for hacking
brokerage accounts and manipulating stock prices, causing losses of nearly
$300,000.
More recently, four
individuals in Australia pleaded guilty to coordinating a pump and dump scheme
via Telegram, targeting penny stocks between August and September 2021. The
group now faces potential prison sentences and million-dollar fines.
How Pump and Dump Schemes Work
Nick S., CEO of Webull Securities (UK), Source: LinkedIn
Pump and dump schemes involve artificially inflating the
price of a stock to attract buyers, before rapidly selling off the holdings to
profit from the surge. Once the stock is dumped, its price collapses, often
leaving late investors with heavy losses.
Changing Tactics in Fraud
Nick S. said recent cases show a more advanced pattern of
fraud. Criminals are reportedly using credentials stolen through phishing
attacks to access brokerage accounts.
They then target thinly traded
NASDAQ-listed stocks, accumulating large positions without drawing attention.
Once they control enough shares, they promote the stock on platforms like
WhatsApp and other social media sites.
In these promotions, fraudsters pose as analysts claiming to
have insider information. They push stories about upcoming medical approvals or
company takeovers to build hype. As the stock price climbs—from, for example,
$2 to $10—retail investors are drawn in, believing they are buying into a
regulated and legitimate opportunity.
“Victims see “regulated” stocks on legitimate
exchanges and assume safety,” Nick S. wrote. “But they don’t realise the stock
values themselves are entirely unsecured.” According to him: “When the dump
happens, prices can fall 90% in seconds and life savings can vanish instantly.”
He said some investors have lost their life savings in
recent weeks as a result of these schemes.
Source: LinekdIn
Calls for Stronger Regulatory Action
Nick S. also criticised the current state of investor
protection and awareness. He said traditional warnings and educational efforts
have failed to prevent the spread of these scams. “The warnings are too niche,
easily overlooked,” he said, adding that it can be extremely difficult to
convince victims they are being misled.
He called on the Financial Conduct Authority (FCA ) to take
stronger action. He suggested that brokers should be allowed to block access to
suspicious stocks without fear of backlash from users or the media. He also
proposed the creation of a daily intelligence-sharing system between brokers
and regulators to support faster responses and prevent harm.
“We’re committed to being part of the solution,” he said of
Webull UK’s stance, “but this requires industry-wide collaboration and
regulatory support.” He concluded by asking the public for thoughts on further
measures to protect retail investors.
