Pump and Dump is Alive and Well

About This Episode

Today we’re talking about one of the most common examples of an investment scam, the “pump and dump”, and comparing it with others you may be familiar with, like the Ponzi scheme and corporate fraud.

Investing scams are nothing new. They’ve been around for years and are unlikely to go away anytime soon. While stories of massive schemes seem to make fantastic movies, the reality is that with the unprecedented times we’re living through, many investors are vulnerable and are getting hurt financially after being drawn into schemes and scams that turned out to be too good to be true.

On this episode, Marcelo and I talk about how pump and dump works, the differences between pump and dump and other common schemes, why so many people are attracted to these schemes, how social platforms may be facilitating and evolution of these types of schemes, how you can protect yourself from them, and so much more

Thank you for listening!

Key Topics:

• Why understanding how pump and dump works is relevant to you (1:29)
• What does “pump and dump” mean (2:24)
• The Wolf of Wall Street as a classic example of a pump and dump scheme (3:53)
• How does pump and dump work in the market (4:52)
• What was the role of “boiler rooms” in pump and dump schemes in the 90s (5:45)
• What is a Ponzi scheme? (7:49)
• Why Ponzi schemes tend to get exposed during bad economic periods (8:31)
• How corporate fraud affects the market (9:48)
• Bre-X as a case study of corporate fraud (11:22)
• Marcelo’s thoughts on how people are drawn into these schemes (13:34)
• How people are sharing trading information social platforms (14:35)
• Why this speculative environment is especially dangerous for young investors (15:47)
• What I learned from a recent conversation with a young investor (16:45)
• When to be wary about cryptocurrency claims (18:21)
• The subtle line between ignorance and criminal activity (19:28)
• How to protect yourself from these schemes (21:02)
• And much more!

Mentioned in this Episode:

• The Wolf Of Wall Street
• Enron: The Smartest Guys in the Room
• Gold
• Jason Zweig’s Wall Street Journal Article | Robinhood Trader’s Battle Cry: ‘It’s All Just a Game to Me’
• Tulett, Matthews & Associates
• Keith Matthews’ Book | The Empowered Investor: A Guide to Building Better Portfolio