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How investors can seek justice after a pump-and-dump scheme

On Behalf of | Jan 8, 2024 | Litigation

Financial fraud takes on many different forms, from outright lies about investment opportunities to more subtle and long-lasting manipulation. For example, the rise of internet culture has made it easier than ever before for investors and business owners to conduct pump-and-dump schemes.

A pump-and-dump scheme can lead to manipulated parties losing most or all of the funds that they invest in a business or stock because the investment was never a good one to begin with despite the hype. How can those harmed by a pump-and-dump scheme pursue financial justice?

By establishing that misconduct occurred

A pump-and-dump scheme is typically a very involved form of fraud. It involves one or more parties creating artificial hype or false positive reviews for a particular investment, such as securities or stocks. They may achieve this by spreading misinformation online or sharing bits of information with others in their industry to start rumors.

The goal is overall to mislead people about the value of specific investments and the future prospects for businesses. Those manipulating public sentiment wait until there is demand for the investment and then sell their holdings for a significant profit. Eventually, those who bought into the hype learn the hard way that the business or fund did not have real-world resources or performance to back up the claims made by those involved in the scheme.

Connecting online content or rumors to specific investors and shareholders is often an integral part of holding someone accountable for a pump-and-dump scheme. Proving that someone with an ownership interest in a company or a large amount of stock intentionally manipulated public opinion can be a challenging endeavor. However, given the scope of the losses possible in a pump-and-dump scheme, those affected may want to consider all of their options.

Investment fraud often leads to charges

Federal prosecution for securities fraud could bolster claims that a pump-and-dump scheme occurred and particular individuals played a role in the fraud. Occasionally, the courts may automatically order compensation for individuals defrauded by a pump-and-dump scheme. Frequently, however, it is necessary for victims of fraud to take direct legal action against the perpetrator to obtain full compensation for their losses. A lawsuit could help compensate those impacted by fraudulent business practices and the manipulation of investment markets.

In scenarios involving criminal charges, initiating a lawsuit and leveraging the criminal case could benefit those harmed by pump-and-dump fraud. Other times, when prosecutors have not taken action, gathering evidence with the help of financial and legal professionals could help people demand justice.

In these ways, understanding the different options available to the victims of investment and securities fraud may benefit those hoping to minimize the long-term losses they must accept because of the misconduct of others.