The $155 Million Pump and Dump Stock Scam in Hong Kong

The Covid-19 pandemic has left many of us trapped indoors with nowhere to spend our disposable income. Stuck at home, people have been turning to the stock market in droves as a way to make some extra cash, hedge against inflation and even as a way to simply pass the time.

However, millions of new amateur investors are at risk of more stock scams than they might realize, and the recent ramp and dump debacle in Hong Kong serves as a timely reminder for newbies and veterans alike.

What Happened in Hong Kong?

In early March, the Hong Kong Securities and Futures Commission (SFC) and the local police raided a number of upmarket homes in the city, arresting 12 people accused of operating a pump and dump scheme.

The perpetrators had been touting stocks on social media in order to draw in thousands of fresh investors, artificially raising the price of the targeted shares, which is known as the ‘pump’. The scammers then ‘dumped’ the stocks, extracting profit for themselves, which crashed prices for those investors still left holding the bag.

How do Pump and Dump Scams Work?

With more of us investing in securities, we’re seeing an increase in these types of scams. The fraudsters will often pose as legitimate companies, industry experts and even impersonate famous online influencers in order to spread their scam message. They favor social media platforms and anonymous messaging sites like Telegram and Discord to promote a chosen stock.

The perpetrators will then pump up a chosen stock, claiming it as the next big thing, telling users they can double or triple their investments if they buy now. They’ll coordinate hype, misinformation and rumors to get as many investors to purchase that particular stock as possible, artificially inflating the price.

Brand new investors are particularly susceptible to this type of scam, and once enough unsuspecting marks have poured their money into the stock, the scammers will dump their entire holdings, making off with the profits.

What Type of Stocks are Targeted?

Fraudsters will usually target low-value stocks, or those with small market caps, as these are much more straightforward to manipulate. Plus, it’s easier to get someone to believe that a cheap share is going to skyrocket soon, especially once they start seeing gains. These stocks generally only take a small number of investors to boost the price, meaning the perpetrators can easily coordinate buyers on social media.

How Can You Spot Pump and Dump Scams?

• Being solicited directly – If you get an email or a DM on social media out of the blue from an unknown party telling you that a stock is about to explode, it’s almost certainly a pump and dump scheme. Ignore it
• An unexplained rise in price in the last few days – If you start to see suspicious posts on social media and message boards, go and check the price history for that stock. If there’s been a spike in the last few days, but no prior history of growth, you’ve almost certainly landed on a ramp and dump. Look for news articles that might explain the price rise. Has the company seen new investment? Higher sales? If all you can find is social media posts, then avoid like the plague
• Big promises of guaranteed returns – Any sensible investor will tell you there’s no such thing as a 100% guaranteed return. Anyone promising big returns is usually a red flag across all stock scams, not just pump and dumps. If it sounds too good to be true, it probably is
• Stocks are pushed by unregistered brokers – Sometimes the scammers will pose as an official brokerage in order to add legitimacy, but this is all part of the scheme. Always check that your chosen broker is registered with the SEC or local financial authority before you hand over a penny

How Can You Recover Your Money From a Stock Scam?

If you suspect you’ve been the victim of a pump and dump scheme, it can sometimes be difficult to get your money back, especially if you don’t know where to start the search. This is where we at PayBack are here to help. Our stock scam recovery experts can conduct an investigation on your behalf, track down the scammers and will do everything they can to ensure you get your money back.

Where government authorities have arrested the perpetrators and seized assets, there’s a better chance of you recovering your investment. We can help you gather the evidence you need to make a claim, confront the malicious parties involved on your behalf and will go to great lengths to secure your refund.

If you’ve made your investments using a credit or debit card, you may be able to claim a refund via chargeback. This is a process where your bank or card provider can reverse any payments you’ve made. We’ll walk you through the process and keep you informed every step of the way.