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Home / Fraud / Types of fraud / Pump and dump scams

Fraud

Pump and dump scams

3 min read

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On this page you’ll find

  • How to avoid falling victim to a pump and dump scam
  • How to report fraud

In a typical “pump and dump” scamScam When someone tries to make money by misleading or tricking another person.+ read full definition, a fraudster offers you what appears to be an incredible deal on a stockStock An investment that gives you part ownership or shares in a company. Often provides voting…+ read full definition, described as a once-in-a-lifetime investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition. There is an artificial market that has driven the price of the stock up, and the value of the stock will fall dramatically soon after you buy it. You could lose all your money.

At the beginning of the scam, the “brokerage firmBrokerage firm A company, corporation, partnership, or other organization that buys and sells stocks, bonds and other…+ read full definition” or fraudster will own a large number of the stock, and actively promote it so more people will buy it, pushing the price higher. Fraudsters will try to trick people to investInvest To use money for the purpose of making more money by making an investment. Often…+ read full definition by telephone or online.

The stock is unlikely to be listed on a Canadian exchange and the stock may be worth pennies.

Once enough investors have overpaid for the stock, the fraudster will sell all of their stock at a high price just before the value falls dramatically. The fraudster disappears, and investors are left holding stock worth much less than what they originally paid for it. And often, when investors try to sell the stock, there are few buyers, if any.

These scams are often carried out with additional promotions on internet chat rooms, bulletin boards and social media.

Be cautious of where you receive information, especially if it is from an unsolicited phone call or online source. Information can be inaccurate, or even fraudulent. For example, many bulletin boards allow the use of aliases, so it is difficult to know who someone really is. And a single individual can create the illusion of widespread interest in a small, thinly-traded stock by posting several messages under different screen names. It is also possible for an individual to post negative or positive information about a particular stock, in an attempt to affect the price in an unfair way.

You should never make an investment based solely on what you read on social media or based on a phone conversation.

How to avoid falling victim to a pump and dump scam

1. Check before you invest

One of the best ways to avoid investment fraud is to make sure that any person offering you an investment or investing advice is registered to do so. In general, anyone selling securities or offering investment advice must be registered with their local securities regulatorSecurities regulator A government agency that enforces the securities act in jurisdiction it has authority over. This…+ read full definition. Checking registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities…+ read full definition is quick and easy, visit CheckBeforeYouInvest.ca for more information.

2. Get a second opinion

Be skeptical of unsolicited investment opportunities that you might receive over the phone, online or from acquaintances. Before you invest, call the Ontario Securities CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its…+ read full definition or get a second opinion from someone you’ve confirmed is a registered advisor. You may also want to consult a lawyer or an accountant.

3. Take the time you need

Be suspicious of limited-time offers and high-pressure salespeople. You should never feel pressured to buy an investment on the spot. Take the time you need to make an informed decision.

4. Research the investment

Before you make any investment, understand how it works and the risks and fees associated with it. Don’t be afraid to ask questions and make sure that it fits with your financial goals. Find out where to get information on a company.

5. Report investment fraud

Victims often don’t report investment fraud for fear of embarrassment. Not reporting what happened, can leave others vulnerable to the same scam.

How to report fraud

If you suspect that you have been approached by a fraudster or that you may have been a victim of a scam, please contact us immediately.

  • Local (Toronto): 416-593-8314
  • Toll-free (North America): 1-877-785-1555
  • Email: inquiries@osc.gov.on.ca
Key point

If you suspect that you have been approached by a fraudster or that you may have been a victim of a scam, contact the Ontario Securities Commission

Last updated September 15, 2023

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