'Pump and dump': Police warn of resurgence in stock-buying scam; victims cheated of US$1 million recently

SINGAPORE: On the recommendation of an "expert", seven people recently bought shares in a US-listed company. In just 48 hours, they lost more than a million dollars.

The Singapore Police Force (SPF) highlighted this case on Wednesday (Aug 11), as it warned of a resurgence of  "pump and dump" scams, a type of stock market manipulation.

In such schemes, fraudsters would artificially inflate the price of a company’s shares by either spreading false positive news about the company or manipulating trading activity to induce others to buy the shares. 

"As the unwitting victims buy up the shares, the share price rises," said the police, describing the "pump" stage of the scam.

In the "dump" that follows, the fraudsters then sell their shares in the company while the share price goes up, before stopping all activities.

The share price then plunges, resulting in sharp losses for the victims.

In the case highlighted by the police on Wednesday, the price of the stock bought by the seven victims fell by almost 80 per cent within two days, resulting in combined losses of US$1.07 million (S$1.46 million).

VICTIMS MET FRAUDSTERS ON WHATSAPP, WECHAT

"Most of those who fell prey to pump and dump scams had met the fraudsters online, through social media or instant messaging platforms such as WhatsApp and WeChat," said the police in an advisory.

"In almost all instances, the victims were persuaded to purchase shares listed on either the Hong Kong or US stock exchanges."

The police added that the fraudsters lured their victims into purchasing shares in two ways. 

In the first method, a photo of an attractive woman is used as a profile picture on social media or instant messaging accounts to lure victims into one-on-one conversations.

After assessing that trust is gained, the fraudsters then claim to possess insider information on certain overseas listed companies and encourage the victims to buy such shares, promising quick profits.

In the second method, fraudsters set up chat groups on instant messaging platforms and invite multiple victims into the chat groups, said the police.

Identifying themselves as investment gurus or shares trading experts, they may first offer stock recommendations that turn out to be correct. 

"Once trust was established, the fraudsters would then 'reveal' to their victims the name of a 'high quality' company whose share price will purportedly increase significantly in the near future," the police added.

The fraudsters would encourage all victims in the chat group to purchase the shares immediately once the company’s name was revealed.

In both instances, the fraudsters would ask the victims to send a screenshot of their trading account transactions to show proof of purchase.

"It is believed that the fraudsters operating these chats are remunerated by the masterminds based on the number of persons they had successfully persuaded to purchase shares, hence they needed the screenshots to claim their rewards," the police said.

The advisory on Wednesday is the second such notice in three months. In May, the police also warned of similar "pump and dump" schemes involving companies listed in Hong Kong. The police said then that the victims were typically approached by scammers claiming to be from China or Hong Kong on social media platforms such as WeChat or LinkedIn.

On Wednesday, the police again reminded people to be on guard against such scams. It advised members of the public to be especially sceptical of recommendations to buy overseas-listed shares with low liquidity, small market capitalisation or with high shareholding concentration.

"Do not be lulled into complacency just because you are purchasing actual shares listed on reputable exchanges," said the police.

"There is no such thing as a guaranteed investment or trading strategy. Do not be tempted by insider tips or promises of quick guaranteed returns."