The Australian Securities and Investments Commission (ASIC) has issued a warning regarding a rise in pump and dump scams conducted through social media and private messaging applications.

The corporate regulator noted that fraudsters are increasingly using fake endorsements and AI-generated deepfake videos featuring prominent financial commentators to artificially inflate share prices.

Once consumers are lured into platforms like WhatsApp or Telegram, scammers provide stock tips designed to drive up the value of specific equities.

The orchestrators then sell their holdings after the price has been artificially inflated, causing the market to collapse. This leaves unsuspecting retail investors with substantial financial losses.

ASIC warns investors against fake experts

“These scams are becoming increasingly sophisticated, and scammers are exploiting the trust Australians place in recognised experts,”

said Sarah Court, Chair, ASIC.

She added that legitimate investment opportunities do not come from strangers on messaging applications pressuring users into buying shares.

How pump and dump scams operate

The execution of these pump and dump scams typically follows a structured pattern. A consumer spots an investment opportunity on social media featuring the likeness of a respected market figure.

The scammer directs the user to a private messaging group after the user clicks the advertisement.

Inside the chat, a scammer poses as the impersonated expert or their assistant. The scammer provides recommendations to purchase shares, often involving foreign exchanges.

Other group members, who are also part of the fraudulent operation, post fabricated messages about their supposed trading profits to build credibility.

When consumers purchase the recommended shares, the share price rises rapidly. In one recent example cited by the regulator, a share price surged to nearly US$11 before collapsing to US$1 shortly after the scammers sold their holdings.

These operations are particularly convincing because victims often purchase genuine shares through legitimate brokerage accounts.

The financial loss only becomes apparent when the orchestrators exit the market and the share price crashes.

A sharp share price collapse leaves investors holding shares worth a fraction of their original purchase price.

ASIC has reminded financial institutions of their responsibility to monitor for suspicious transaction patterns linked to market manipulation.

The regulator expects banks and financial service providers to take appropriate steps to protect customers from harm.

Featured image credit: Edited by Fintech News Australia, based on image by Powerlightss via Magnific