‘Scam targets investors in New Zealand with “pump and dump” scheme’

The Financial Markets Authority in New Zealand is cautioning citizens about the prevalence of ‘pump and dump’ scams causing financial losses to multiple victims who have filed complaints.

John Horner, the director of markets, investment, and reporting at FMA, emphasizes the need for ‘extreme caution’ among New Zealand investors due to the growing occurrence of pump and dump schemes in the country. These scams are orchestrated in a way that manipulates the market to inflate share prices, resulting in significant losses for unsuspecting shareholders.

Impersonation plays a crucial role in these scams, where individuals pose as prominent business figures in social media advertisements to entice investors to participate in group investment chats that are, in reality, fake. The FMA initially flagged these impersonation tactics in August, expressing concerns over the global network of scams dedicated to market manipulation.

The mechanics behind a pump and dump scam involve artificially inflating share prices through orchestrated campaigns to create a false sense of hype around a company’s stock. This misinformation spreads through online platforms and forums, coercing investors into purchasing shares based on fabricated prospects. As a result, the share prices are artificially driven up, allowing the scammers to profit from selling their shares at inflated prices while other shareholders suffer the consequences of financial losses as the share prices plummet.

To create credibility and lure more victims, these scammers use popular social media platforms like Facebook and Instagram to present themselves as well-known New Zealand business figures, enticing investors to partake in group discussions on platforms such as WhatsApp. Subsequently, investors are persuaded to buy low-value shares in companies listed on foreign exchanges, contributing to the artificial inflation of share prices, which is ultimately a form of market manipulation.

Following the fraudulent activity, scammers then promise compensation or reimbursement to victims as a way to collect personal information and extract further payments. The FMA has identified several investment group chats and fictional investment advisors propagating these scams, prompting heightened awareness and caution among New Zealanders regarding investment-related decisions and advisory sources.

The FMA plans to collaborate with foreign financial regulators to address similar scams operating overseas, including those listed on US exchanges like NASDAQ and companies based in China. By sharing case details and alerting relevant entities, such as banks and businesses being impersonated, the FMA aims to combat these fraudulent schemes that prey on unsuspecting investors.

In conclusion, the FMA emphasizes the importance of reporting suspicious activities to social media channels, the companies involved, and the regulatory authority itself. Investors are urged to exercise vigilance and discretion when approached with investment opportunities through social media, as these could potentially be part of fraudulent schemes like pump and dump scams. By remaining cautious and skeptical of offers promising recovery of lost funds or drastic investment opportunities, investors can protect themselves from falling victim to financial scams.