In a typical “pump and dump” scheme, an investor is approached and offered an incredible deal on a stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ 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 drives the price of the stock up, only to have the value of the stock fall dramatically soon after. You could lose all your money.
Fraudsters, who may say they are from a “brokerage house” (often not registered), will contact investors by telephone or email.
The stock is unlikely to be listed on an exchange in Canada and the stock may be worth pennies.
The “brokerage house” or fraudster, while holding a large block of the stock, actively promotes the stock so that the price is driven significantly upward.
Once a sufficient number of investors have overpaid for the stock, the brokerage house ceases to support the market for the stock and the value of the stock falls dramatically.
The “brokerage house” or fraudster promptly closes up shop, and the victim is left holding worthless stock for which there is apparently no demand.
These schemes are often carried out with additional touting in internet chat rooms and bulletin boards in addition to phone calls soliciting for investments.
It is wise to be cautious about information on social media. 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 act is made up of laws that establish rules for issuing and trading securities. The Ontario Securities Commission is the securities regulator for Ontario.+ read full definition. Checking registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ 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 investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition, call the Ontario Securities CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets, and to contribute to the stability of the financial system and the reduction of systemic…+ 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 scamScam When someone tries to make money by misleading or tricking another person.+ read full definition.
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: firstname.lastname@example.org
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