Types of Internet Securities Fraud

If you’re in the market for buying securities online, stay vigilant against scam artists who may impersonate legitimate advisers. Below are common types of internet securities fraud to monitor:

3 Types of Market Manipulation

1. Pump and Dump Schemes: These schemes are short, quick manipulations of a stock’s price. Generally, scammers buy thinly-traded stocks and broadcast an overly-optimistic message about the stock, which fuels more investments and drives up the price. The scammer doesn’t disclose any ownership interest in the particular stock, and quickly sells it for significant gain. Pump and dump messages can be shared through official looking emails, message boards, social networks, or investment advice web pages.
2. Dump and Dis Schemes: This is the Pump and Dump scheme in reverse. The scammer short sells a stock, then transmits a negative message to investors. This causes rapid selling, which drives the stock’s price down. Again, the scammer makes no disclosure about the negative position they hold in the stock. The scammer buys the lower valued stock to fill their earlier sell orders, making a profit on the difference.
3. Insider Trading: These incidents involve individuals who receive non-public information, use it to trade ahead of its public release, and profit after its release.

Unregistered Broker-Dealers and Investment Advisors

Many of these scams are conducted by unregistered broker-dealers and investment advisors. These individuals offer, sell, or give advice about securities to investors over the Internet without being registered to do so.

If you have information about any of these potential securities violations, or if you want to learn more about persons issuing or selling securities or giving investment advice, file a complaint online or contact our Enforcement Division.