Pump-and-dump scams: how promoters profit, a worked example and five red flags

This page is general education, not financial or legal advice. Case announcements below are dated historical accounts. Charges and complaints are allegations, not findings of guilt; this page does not claim to establish their current procedural status. Nothing here recommends buying or selling any stock or crypto asset. Regulator data are labelled by region; the worked example uses neutral currency units.

In 2024, the FBI launched its own crypto token, complete with a company behind it and a name, NexFundAI. It was a trap: investigators wanted to see who would offer to fake its trading activity. Eighteen individuals and firms were charged, and more than 25 million dollars in crypto was seized. US Attorney’s Office, Massachusetts, 2024. The operation covered alleged market manipulation and wash trading. Not every charge in that operation describes the same pump-and-dump mechanism.

What a pump and dump is

The US SEC describes promoters spreading false or misleading information to increase demand and prices, then selling their own shares at inflated prices. After the selling and hype stop, the price typically falls. Promotions can spread through social media, newsletters, ads or chat rooms. SEC Investor.gov.

Thin trading and limited public information can make manipulation easier. A low nominal share price alone does not establish either condition. The important questions are who owns the asset, what independent evidence supports the claims, and whether buyers can actually sell into sufficient demand.

How the money moves: a worked example

The mechanics are the same whether the asset is a 1990s penny stock or a new crypto token. The example below is hypothetical: one fictional asset, prices in neutral units, no fees, simplified liquidity.

The promoters’ realised cash profit is 400,000 − 100,000 = 300,000, before fees and taxes. The followers’ marked loss is 400,000 − 80,000 = 320,000. They have not necessarily sold, so their eventual realised loss depends on actual sale proceeds and costs. A quoted price does not guarantee that all shares can be sold at that price.

The difference of 20,000 is not an extra payment to the original sellers. Those sellers received 100,000 at step 1. Market-value changes are not a conservation-of-cash equation: the remaining shares’ valuation has changed. Earlier sellers’ profits cannot be calculated without knowing their own cost basis. The example shows the transfer at step 3 and the later repricing separately; it does not imply every fall in market value went into someone else’s pocket.

On your phone: group chats, influencers and “investment clubs”

Ramp-and-dump (US). The FBI’s July 3, 2025 warning described messaging-app investment clubs encouraging members to buy stocks that criminals secretly controlled, then selling into the increased demand. The notice reported at least a 300% rise in victim complaints mentioning this pattern so far in 2025 compared with 2024. That is the notice’s partial-year comparison, not a full-year global scam rate or an estimate of all victims. FBI IC3, July 2025.

A dated influencer case (US). In December 2022, the SEC announced charges against eight people in an alleged scheme using Twitter and Discord. The complaint alleged that promoters encouraged followers to buy while concealing plans to sell when prices or trading volumes increased; the SEC put alleged fraudulent profits at approximately 100 million dollars. This is the allegation described in that announcement, not a finding of guilt or an assertion that the case remains unresolved today. SEC announcement, December 2022.

Crypto: the same scheme, faster

A new token can combine concentrated ownership, limited independent information and a trading pool whose liquidity can be removed. These conditions deserve scrutiny regardless of the promoter’s follower count.

Chainalysis studied Ethereum, BNB Smart Chain and Base in 2024. It counted 2,063,519 newly launched tokens, of which 74,037 (3.59%) met its suspected pump-and-dump criteria. These included an address removing at least 65% of a pool’s liquidity worth at least 1,000 dollars, a pool inactive for 30 days, and more than 100 transactions. About 94% of flagged pools, not tokens, were abandoned by their creators. These are behavioural heuristics, not proof of intent, a global crypto prevalence rate or a measure of victim losses. Chainalysis methodology and tables, January 2025.

Trading volume is not independent demand. Wash trading creates apparent activity through coordinated trades rather than genuine changes in ownership. In the October 2024 operation, the US Department of Justice described alleged wash trading involving its law-enforcement-created NexFundAI token. This illustrates why busy-looking trading alone is weak evidence of a sound investment. DOJ case announcement.

Removing liquidity can leave buyers unable to sell on reasonable terms. A sharp price fall alone does not prove fraud, and the legal treatment depends on the facts and jurisdiction. Learn more in crypto risk basics.

Five red flags

Use these screening prompts, drawn from the SEC explanation and FBI warning. A prompt is a reason to investigate, not proof of a crime.

1. Unsolicited contact. A stranger’s ad or message leads to a private investment group.
2. Time pressure. You are asked to buy before you can verify the business or promoter.
3. Secret knowledge. Supposed exclusive picks or impersonated experts replace independently checkable information.
4. Thin trading or opaque ownership. A small order can move the price, and you cannot establish who can sell a large stake.
5. A return promise that ignores downside. Ask what could produce a loss, who pays the promoter and whether an exit is realistically available.

A sixth point follows from the mechanics: the person pumping it never tells you when they are selling. That was the core of the allegations in the influencer case above.

The simplest test is a question: if this is so good, why is a stranger telling me about it? The investing vs. gambling test helps you reflect on evidence, downside and decision process; it cannot verify an expected return.

What to do if you are approached or have lost money

• Do not buy, and do not send more money, including to anyone who offers to get earlier losses back for a fee.
• Keep the evidence: screenshots of messages and group chats, usernames, links, transaction records and wallet addresses.
• Report it to the authorities where you live. In general terms:
  • US: the SEC for securities fraud and the FBI’s Internet Crime Complaint Center (IC3) for online fraud.
  • UK: the Financial Conduct Authority (FCA), which also keeps a warning list of firms operating without authorisation.
  • EU: your national financial supervisor. The EU-level authority, ESMA, is a starting point if you are unsure which one applies.
  • Elsewhere: your national securities regulator and the police.
• Tell the platform where you saw the promotion, so the account can be reviewed.

Related reading

• Diversification and index funds explain the boring alternative to chasing tips: owning many companies at low cost.
• Investment fees and the compound interest calculator let you explore hypothetical compounding and fee assumptions. Actual investment returns vary and can be negative.
• Passive income reality check looks at other promises that sound too good to be true.