300 Percent Increase in American Investors Defrauded by ‘Ramp-and-Dump’ Stock Fraud

(The Epoch Times)—There has been a surge of criminals targeting stock investors in the United States in a “ramp-and-dump” stock manipulation scheme via messaging apps and social media platforms, the FBI said in a July 3 alert.

In the scheme, “investment clubs” are promoted among potential targets. These clubs are often bots or fake accounts, and the promotional messaging directs victims to secure messaging apps where the group operates. Scammers impersonate legitimate brokerage firms or well-known stock analysts to appear credible.

“They secretly control a large volume of a low-priced stock and coordinate efforts to inflate its price (‘ramp up’) by encouraging investment club members to purchase shares over a period of several weeks or months,” said the alert.

“Once the price is artificially elevated, the criminals sell off (‘dump’) their shares at a profit, leaving unsuspecting investors with significant losses as the stock value collapses.”

According to the FBI, there has been at least a 300 percent annual jump in victims complaining about ramp-and-dump stock fraud so far this year.

The agency asked investors who suspect they’ve been duped in investment fraud to report the incident to the FBI Internet Crime Complaint Center (IC3) website.

The FBI’s Chicago Division released a statement earlier this year seeking victim information on a ramp-and-dump investment scheme.

In January, some individuals allegedly impersonated U.S. investment advisors, making “false representations and instructed investors to purchase shares of CLEU stock, promising significant returns on their investment.” CLEU refers to China Liberal Education Holdings Limited.

“However, when the value of CLEU stock dropped dramatically on January 30, many investors lost nearly all of the funds invested in these shares,” the FBI statement said.

Warning Signs of Fraud

In the FBI alert, the agency detailed some of the red flags to watch out for to identify whether an investment proposal is part of a ramp-and-dump scheme.

For instance, people targeted by scammers could receive unsolicited investment tips via “accidental” messages with links to online investment clubs.

The scammers may push to buy low-priced stocks in emerging or new companies, promising high returns, and even vowing to cover losses incurred from investing in these entities, said the alert.

They can pressure people to quickly buy stocks, citing a major market-moving event such as government approval or a company breakthrough, it added.

“If anyone requests your personal information, access to your financial account(s), or offers a financial benefit in exchange for sharing your information or opening an account, consider this a red flag; your information could be used to open an account through which another party can engage in manipulative activity,” said the FBI.

According to the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization of broker-dealers, one of the hallmarks of a ramp-and-dump scheme it has observed is “significant, unusual price increases” on small-cap stocks on the day, or shortly after, their IPOs.

Most of these involve companies having operations outside the United States, said the organization, adding that U.S. regulators believe ramp-and-dump schemes were involved in manipulating some of these IPOs.

FINRA cited stocks having small market capitalization and limited public float—the shares of a company available for trade to the public—as a red flag of ramp-and-dump fraud.

“These schemes have been more commonly found in relation to IPOs raising less than $25 million and issuing fewer than 20 million shares, with issuer valuations under $100 million,” FINRA said.

“Limited public float means that only a small portion of overall shares is available to the public. When a company has limited public float, its shares can be more volatile and harder for investors to sell.”