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Athena Dynamics Young Writers Series Article #4: Investment Scams

05/05/20212021 May 05
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Cybersecurity Young Writers Series: Investment Scams

The “Pump and Dump” Scam

Advisory Editor: Nyan Tun Zaw, VP of Business Development, Athena Dynamics

Author: Glenn Soh, Business Development Intern, Athena Dynamics
Copyright © May 2021 All Rights Reserved Athena Dynamics Pte Ltd

What Is A Pump and Dump?

A pump and dump is the illegal act of artificially raising the demand of a stock by mass purchases (usually in groups) and selling it once the price has risen, causing its value to plummet. This results in many other investors being left with stocks that have little value. 

While being part of the initial group that mass buys the stock seem like an easy way to earn money, majority of the them end up losing money too.

Method 1: Community Pump And Dump

While the exact method may vary, the scam would usually go somewhere along these lines:

Step 1: Scammer creates a “Pump and Dump” group on social media. (Discord / Facebook / Telegram).

Step 2: Scammer promotes their group as an easy way to earn money by manipulating the stock market.

Step 3: Once there is a sizable group, the scammer will announce that either he will reveal / a bot will randomly reveal a certain stock at a specific time and date. The moment the ‘secret stock’ gets revealed, everyone is instructed to buy it to ‘pump’ the stock prices, as higher demand results in higher prices.

Step 4: The plan from the scammer is that everyone in the group will buy the stock at the same time to artificially increase the price of the stock. With the surge in demand, the price of the stock will skyrocket. When this happens, stock bots would detect the sudden surge in price, causing outsiders to potentially buy such stocks with hopes of profiting.

Step 5: In theory, when outsiders buy the stocks, the prices will continue increasing. Knowing this, the plan is for the people to hold onto the stock for a couple of minutes before selling it in order to capitalise on the increasing prices.

Step 6: However, in reality, prices tend to drop very dramatically very quickly, causing people to lose most of their money as they are unable to sell it in time.

Step 7: The plummet is largely contributed by the admins and their closed ones as they have inside information. The admins usually know the stock beforehand and buy them cheaply the day before the ‘pump’. When the scammer tells everyone to ‘pump’ the stock, he sells his, to get a large profit from the desperate members who in turn lose money.

The graph below is a representation of what happens during a classic pump and dump scam. 

Source: https://www.police.gov.sg/Media-Room/News/20190504_OTHERS_Police_Advisory_Pump_and_dump_scams_involving_Hong_Kong_listed_companies

Why Does It Work?

While this scam seems obvious in nature, it works because:

  • Social media channels are heavily censored to reduce suspicion (For example… Discord text channels would be locked after the drop)
 
  • People exposing them will be kicked from the group or have messages deleted
 
  • Admins often give excuses like “didn’t click fast enough”
 
  • Community spirit: Insiders would post their successes, making you seem like you’re the one with the issue
 
  • Groups tend to have large numbers, make it seem legitimate 

Other Common Methods

In the past, the similar methods were used. However, instead of using message boards, they cold-called their victims.

Voice messages would usually be left in the victim’s voice mail regarding a ‘secret tip’ about a stock that was recorded to make it seem as though the scammer had called the wrong number.

Various other methods include ‘hyping up’ the stock by spreading fake news / rumours about the possibilities of the share going up, or the scammer befriending you and convincing you that he has ‘insider information’ that the share is going to skyrocket in prices

In Summary...

Always be wary of tips or advice that seems to good to be true. People wouldn’t give away tips to benefit a stranger at the expense of themselves. Do your own research if you are unsure.

If it’s too good to be true, it’s likely a scam

Biographies

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Glenn Soh is an intern in the Business Development Team in Athena Dynamics Pte Ltd, which is a subsidiary of BH Global Corporation Ltd, an SGX mainboard listed company. 

Nyan Tun Zaw is the VP of Business Development at Athena Dynamics Pte Ltd, which is a subsidiary of BH Global Corporation Ltd, an SGX mainboard listed company.

With a wide range of background in cybersecurity, software development, web development as well as networking, Zaw has in-depth experiences in deploying security solutions for several highly confidential government and critical infrastructure projects, particularly in the CDR/CDNR field as a technical lead. His interest mainly lies in Cybersecurity and AIML.

Zaw holds a Bachelor of Business Management, with double majors in Finance and Information Systems, from Singapore Management University. He is also a holder of the Certified Ethical Hacker (CEH) certificate by EC-Council.
Being a technical person who also likes sharing his experiences and opinions, Zaw has also been part of a speaking panel with global CIOs at the CIO Leaders Summit. 

Contact: [email protected]