FINRA Presents the Warning Signs of a Ramp and Dump Scheme

Credit Nation Capital, LLC (formerly known as Credit Nation Lending, LLC) ("CN Capital"), a Georgia limited liability company in Woodstock Georgia; (ii) Credit Nation Acceptance, LLC ("CN Acceptance"), a Texas limited liability company in Midland, Texas; (iii) Credit Nation Auto Sales, LLC, a Georgia limited liability company in Woodstock, Georgia; (iv) American Motor Credit, LLC, a Georgia limited liability company in Woodstock, Georgia; and (v) Spaghetti Junction, LLC, a Nevada limited liability company.

Just about everybody knows what a “pump-and-dump” scheme is. It’s a type of price manipulation where bad actors use falsified, heavily promoted news, financial statements or other marketing communications to increase volume and manipulate the market price of a stock while simultaneously selling their cheap stock into the market.

In a “ramp-and-dump” scheme, which is a new twist on the classic pump-and-dump scheme, the price manipulation is primarily the result of controlled trading activity conducted by the bad actors behind the scam. Ultimately, the outcome for unsuspecting investors is the same—a catastrophic collapse in share price that leaves investors with unrecoverable losses.

According to the Financial Industry Regulatory Authority (“FINRA”), there have been notable significant, unusual price increases on the day of or shortly after the IPOs of certain small-cap issuers, most of which involve issuers with operations outside the U.S. Regulators suspect some of these IPOs might have been manipulated in a ramp-and-dump scheme.

FINRA provides the following red flags to help investors identify a potential “ramp-and-dump” scheme:

  • Social Media or Messaging App Introduction: These schemes often begin with a seemingly misdirected text, a message through a direct messaging application, or contact on social media, leading to a relationship (sometimes romantic in nature) between retail investors and bad actors. The fraudsters sometimes pretend to be financial experts or to know someone with knowledge of the financial industry. They might also invite targets to join investment clubs or other groups on social media or a messaging app (such as WhatsApp, WeChat or Telegram). After a relationship is established, the bad actor lures the investor, often in a scenario that law enforcement call “pig butchering,” into placing trades in newly offered small-cap securities at a certain price and quantity, directly through their own brokerage account, on a specific day and time.
  • Small Market Capitalization and Limited Public Float: These schemes have been more commonly found in relation to IPOs raising less than $25 million and issuing fewer than 20 million shares, with issuer valuations under $100 million. Limited public float means that only a small portion of overall shares is available to the public. When a company has limited public float, its shares can be more volatile and harder for investors to sell.
  • Foreign Issuers: Investigations have found that many affected issuers or their operating subsidiaries or affiliates maintain primary operations in China, but some issuers base their operations in other non-U.S. countries.
  • Significant Price Spikes and Drops: Most IPOs suspected of being involved with, or otherwise manipulated by, a ramp-and-dump scheme experience significant share price increases in the opening trade on an exchange and in continuous trading on the day of, or days immediately following the listing. These price increases don’t appear to be driven by news or material events, but rather by increased trading activity fueled by incoming investors generated through false demand. After the initial spike, however, the price quickly declines to a level at or below the offering price as the bad actors dump shares on the market.

Other hallmarks of a ramp-and-dump scheme that regulators have identified can be difficult, if not impossible, for retail investors to identify. These include the allocation of a significant amount of the shares to foreign broker-dealers or to a small number of investors, or the use of falsified foreign accounts to invest in and influence the trading activity of these IPOs.

So what precautions can investors take to avoid falling victim to a “ramp-and-dump” scheme?  According to FINRA, if you’re solicited for or interested in investing in a newly issued small-cap stock, take the following precautions:

  • Never engage with unsolicited messages from unknown contacts, especially via text message and encrypted messaging applications. Block the sender, and delete the message.
  • If anyone requests access to your personal identification or your account—or offers you a financial benefit for sharing information or opening an account—consider it a bright red flag. Your information might be used to open an account through which another party can engage in manipulative activity.
  • Do your research to find out who’s underwriting the IPO, where the company is based and whether there are any foreign affiliates. Recognize and plan for the increased risk that comes with investing in non-U.S. small-cap companies, especially those underwritten by foreign broker-dealers and with operations exclusively or primarily outside of the U.S.
  • Remember that companies with a lower market capitalization and limited public float tend to experience more price volatility and wider spreads. And when a company is connected with a ramp-and-dump, you might not be able to sell your shares at all.

These schemes continue to evolve as bad actors adapt their approach to evade detection. If you think you’ve been a target or victim of a ramp-and-dump stock manipulation scheme, submit a regulatory tip to FINRA.


To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
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