Data obtained by CBS News New York Investigates shows a massive increase in pump-and-dump schemes over the last year.
It’s a type of stock market scheme that’s emptying bank accounts all over the country.
Two traders from New York told reporter Tim McNicholas it cost them tens of thousands of dollars.
How pump-and-dump schemes work
From the Nasdaq to the New York Stock Exchange, the FBI says pump-and-dump complaints have jumped 330% over the last year.
Scammers start out by buying shares of a cheap stock but then convince others to buy big, pumping up the stock’s value so the scammers can then sell their shares for huge profits.
D.J. Hennes is a managing director with the accounting firm KPMG.
“More people are invested in the stock market than ever,” Hennes said. “Sort of [like] day trading with Robinhood. It’s more popular to be involved in these things in the short term, and then social media has allowed these messages to go out more quickly to more people.”
Securities and Exchange Commission Chairman Paul Atkins recently testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs that he has been taking steps to protect investors and try to prevent pump-and-dump schemes.
“The Professor” hatches the scheme on WhatsApp
The sound that signals a new day of trading on the Nasdaq now sounds like an alarm bell to one Peekskill man.
“I lost, um, $74,000. I felt terrible, extremely depressed. In addition to losing money, you feel humiliated when you get run over like that,” one trader said.
He said it all started back in November, when he discovered a social media account offering investment advice. He said that account invited him to a WhatsApp chat, where an apparent financial guru called “The Professor” shared trading advice with dozens of people.
The trader said The Professor told him “Life is about continuous learning and progress” and “Let’s grab this chance and get one step closer to our goals in life.”
CBS News New York
At first, the trader said, the advice worked, and his account grew by tens of thousands.
Then, in late January, The Professor urged the group to buy big on a little-known, foreign company called Masonglory Limited, or MSGY on the NasdaqQ.
The value of the stock skyrocketed from all the new investments, only for it to crash the next day.
“My $80,000 stake went down to $10,000, and, actually, I lost the least amount of money out of the people I know. Many people have lost well over $100,000, $200,000,” the trader said.
Long Island man loses nearly $100,000
Other people who invested in MSGY took to Reddit to share their stories, and a Long Island man told CBS News New York Investigates he lost $96,000 to the ruse. Like the man from Peekskill, he asked to remain anonymous because he says his family is still afraid of the scammers.
“They’re worried about physical intimidation and people going out and getting revenge and so forth,” the man from Peekskill said.
Nasdaq said there was so much volatility on that stock that morning that it triggered an automatic freeze, so the victims could not trade as the value plummeted.
CBS News New York Investigates reached out to Masonglory Limited and did not hear back, but financial experts say the companies, themselves, often have nothing to do with pump-and-dump schemes.