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Pump-and-dump schemes

On Behalf of | Sep 10, 2023 | White Collar Crimes |

Investors want to receive a return on their investment, and they often rely on legitimate research and data before directing their funds toward an asset such as a stock. Unfortunately, a Michigan investor may discover they relied on inaccurate information or misleading trends because of a pump-and-dump scheme. Those who engage in such practices might find themselves facing federal felony charges.

Pump-and-dump schemes

At its core, a pump-and-dump scheme involves artificially boosting a stock or another asset’s price. The increase in the value comes from false or misleading information designed to make the asset look like it’s worth more than it is. For example, someone may spread inaccurate information that a particular cryptocurrency will soon become the national currency of one or more countries. Such statements could dramatically increase interest in purchasing the currency. That would be the pump element of the scheme.

Those promoting the scheme could purchase significant amounts of the asset. The asset could increase tremendously in value, giving the schemers a tremendous boost on their investment return. Knowing that the stock or other asset will invariably crash, the schemers would sell the stock at significant returns.

Legal woes and pump-and-dump schemes

Although someone may face an indictment for a pump-and-dump scheme, the accusations do not mean the person is guilty. Someone might not know the information they sent was false, a point that may undermine the claim the person knowingly engaged in a fraudulent act or any white-collar crimes.

Law enforcement officials may not violate a suspect’s constitutional rights. The evidence procured might not be admissible in court if the investigation involved illegal activities. Coercing witness statements can also undermine the prosecution.