A pump-and-dump scam is when someone spreads false or misleading information to drive up the price of a stock, then quickly sells their own shares to make a profit.
How pump and dump scams work
A pump-and-dump scam has two main steps:
1) “Pump” (create hype)
Scammers spread false or misleading claims to make a stock seem like it’s about to take off. They often push messages like:
- “Buy now"
- “This is a once-in-a-lifetime opportunity.”
2) “Dump” (cash out)
When the price rises, the scammers sell their shares for a profit. After they stop promoting the stock, the price often falls quickly—sometimes in minutes or hours—and other investors can lose money.
Where these scams show up
Pump-and-dump scammers find their victims typically online:
- Social media posts and comments
- Direct messages (DMs)
- Email or “stock tip” newsletters
- Online forums
- Private or encrypted group chats
A common pattern today is: an “investment club” ad leads people into a private group, where scammers then push specific stocks.
The “FOMO” factor
Scammers rely on FOMO (fear of missing out). They create urgency so people act fast without checking facts. If the stock price starts rising, it can feel like “proof” the tip was real—which pulls in even more buyers and drives the price higher.
Warning signs to watch for
Be cautious if you see:
- Pressure to buy immediately or “before it’s too late”
- Claims of “guaranteed” returns
- Big hype about a stock you’ve never heard of
- A stock that suddenly becomes very volatile (huge price swings)
- Promoters telling you to borrow money (like using a HELOC) to invest
- A person who quickly becomes friendly online, then pivots to a “can’t lose” stock tip