How AI is Making ‘Pump and Dump’ Investment Scams Easy for Criminals

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[00:00:01] Bob: This week on The Perfect Scam.

[00:00:04] Karen: I think behind all this is AI generating responses.

[00:00:08] Bob: Mm. Oh wow.

[00:00:09] Karen: Yeah. Because, we are all finding a similar pattern of the, some of the responses we got, some of the recommendations that we got. So, you wonder like, how does one person interact with so many people all at the same time?

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[00:00:28] Bob: Welcome back to The Perfect Scam. I'm your host, Bob Sullivan. Pump and dump. Buy a very cheap stock, convince a bunch of other people to buy it so the stock price goes up. Then sell your shares for a tidy profit while everyone else loses money. It sounds a bit like a financial game of musical chairs. But it's no game. It's very serious and very illegal. And it's become very easy in the age of artificial intelligence. Today's story combines many elements we often talk about here on the Perfect Scam: celebrity power, fake promises of investment gains, seedy online chat rooms. But the part of this story I don't want you to miss is how an army of bots, digital robots, supercharges an age-old pump and dump crime into something really devastating. Meet a woman we’ll call Karen. She wants to protect her identity, a self-employed consultant who has a fair bit of experience saving and investing for retirement.

[00:01:32] Bob: Can you tell me what it is that you do?

[00:01:34] Karen: I do consulting.

[00:01:35] Bob: Okay. Yeah, so, but when you work for yourself, you're, there's no pension, right?

[00:01:39] Karen: Right. No pension. We have what's called the SEP self-employed plan. I think SE, SEP IRA, which is similar to a 401k, but it's for self-employed. And so I've, over the years I've built that up. I've always been watching. My investments, but I've never heavily invested into options or anything like that. In fact, I invest one share at a time and over the years have just built up my portfolio and through 401Ks.

[00:02:09] Bob: One share at a time. Wow. That's the really from the ground up. Yeah.

[00:02:12] Karen: Yes. Uh huh. Yep. Well, because you, you can do that and then some of the shares are so expensive. Nowadays, like one share could be a thousand dollars. You know?

[00:02:21] Bob: Why is investing important to you?

[00:02:23] Karen: Mainly for retirement. For me, investing definitely, uh, to build a retirement fund as well as I was also hoping, because I get involved with church activities with my church a lot, and I was hoping to increase something so I could tithe to the church.

[00:02:41] Bob: You, you wanted to donate?

[00:02:42] Karen: Yes. I, I was thinking of a way to increase my tithing, to the church.

[00:02:49] Bob: So like everyone, Karen is always on the hunt for better returns on her investments.

[00:02:55] Karen: Slowly, I was looking as most people do, maybe a, not necessarily, maybe a quicker way or a more accelerated where I can have an increase or a better return. I think most investors are always looking better return, better than market rate, but it, it's difficult.

[00:03:13] Bob: There are whole TV channels, whole newspapers all devoted to trying to figure out how to make a better return from your investing, right?

[00:03:19] Karen: Uh huh, yes. Yes.

[00:03:20] Bob: Yeah. That's what everyone's always looking for. It's probably even more important for you. Have you always been self-employed?

[00:03:35] Karen: Most of my career I have been.

[00:03:28] Bob: And one day last year. Okay, it wasn't one particular day. It sort of happened over time. Karen sees a series of advertisements on Facebook that offer images and comments from famous investors. Investors who are famous to other investors anyway, promising to share their wisdom, to help people like Karen get a little bit better returns.

[00:03:49] Karen: When you scroll through Facebook, you know how advertising pop up, so I am sure over a period of time I've been clicking here, clicking there, but I have, I did notice that there were a lot of so-called ads that were promoting notable investors like Kathy Woods, Ray Dalio, and Steve Cohen, Bill Ackman. And so I, I think just throughout a period of time I was clicking on these sites.

[00:04:17] Bob: And those names were really important, right?

[00:04:19] Karen: Yes, most definitely. Because they're well recognized. And even like during COVID, Kathy Woods did very well, so I was following her and I had invested in some of her ARC funds. So those names, yes, definitely important as far as trusting them because they, they were trust, trusting in the names, reputable investment,

[00:04:40] Bob: Successful, right?

[00:04:41] Karen: Yes. Uh huh.

[00:04:43] Bob: So the ads wear Karen down. She's really curious and she clicks on several of them. She's not exactly sure how she got there, but a few clicks later, she finds herself in a WhatsApp chat room devoted to investing just a gaggle of people passing along stock tips, talking fast. Buy this, sell that. Think a loud bar on Wall Street after closing hours. Just a lot of talk. Karen kind of sifts through it all. Doesn't take it too seriously, but soon she gets a direct message from someone named Bert.

[00:05:16] Karen: Bert Direct messaged me and said, oh, yes, I'm also a member of this group, and was asking about investment advice and he, he seemed like such a real person. He said, “Oh yeah, I just recently lost $50,000 in a scam and I'm trying to recoup my money.” It's sort of like a personal, very personal dialogue.

[00:05:38] Bob: Bert is very friendly, and although he's far away, he seems to have a personal connection with Karen.

[00:05:45] Karen: He said he actually lived in the UK, in London. I said, oh, I have, I have friends in near the area where he lived. So it seemed like it was friendly conversation and I thought it was, you know, he was just a member of that WhatsApp group of investors.

[00:06:00] Bob: And you, you, you had a friend who was like a half an hour away from him or something, right?

[00:06:03] Karen: Yes. I, I have some in, in the UK, I have a friend that lived close to where he said, and I wasn't quite sure how he knew. I, I don't know if it was coincidence, it seemed like, oh, it seemed like a connection. I have a friend there and he, he happened to live there. And he said, “Well, when you visit your friend, come uh, and I'll take you around.” So I, you know, at first it seemed kind of strange, but then, you know, when you're on these social apps, sometimes they get really friendly and you don't think anything of it.

[00:06:33] Bob: Meanwhile, Karen gets a bunch of other friendly requests too, but they all seem not quite right.

[00:06:41] Karen: But in the meantime, there were other groups called different things. They were all different numbers. They were all WhatsApp group and some were like pushing cryptocurrencies.

[00:06:51] Bob: Oh boy.  

[00:06:52] Karen: But I really ignored them because they, they sounded too, I don't know, too unreal. Unrealistic.

[00:07:01] Bob: This conversation with Burt goes on for a few days and about a week after landing in this loud investing chat room. Well, Bert has an intriguing invitation for her, a chat room that's not merely so loud.

[00:07:15] Karen: So we were chatting back and forth, and then he told me about, well, this VIP room, and said, oh, yeah, I recently joined their because even when, when you're in the general chat room, they talk about inviting people into VIP room. He said, oh, yeah, I, I just recently joined the VIP room. I'm getting really good returns on it. And, and he encouraged me to try it out.

[00:07:41] Bob: A VIP room where Bert is getting good advice? Now, this is tempting, but Karen still isn't so sure.

[00:07:49] Karen: At first I was hesitant and then I thought, okay, I'll, I'll, I'll try it out. So then he connected me with another lady named Ava Evans. And I got brought into this big, the VIP room, and in this VIP room there was a, she sent me a link to this financial advisor named Jess Parker, who runs a financial, I guess company, a wealth management company advisory. So there was, she sent me a link to the website with a, it had an address. It all seemed quite normal. You know?

[00:08:27] Bob: it all seems quite normal. Ava seems normal.

[00:08:31] Karen: Ava Evans, she had a profile picture. She seemed like a nice young lady. Uh, she gave her story that she was a single mom and that when she joined this group and got these tips, that she was able to make money and help support her child. And she, they, they even sent videos and pictures at the tea party, whatever, uh, they were going to like, and during Halloween, the guy, Bert sent me pictures of pumpkins that he was, he said, oh, oh. I just, it was, and he was carving pumpkins with his children, so.

[00:09:07] Bob: So Karen and Ava and Bert all hit it off. And in between swapping Halloween costume pictures, they swap stock tips. But Ava, she says she has a secret weapon in the investing world.

[00:09:21] Karen: Well, with Ava, you know, she's claiming that she gets these tips from the advisor, Jess Parker is sort of the advisor. He has this software, where, uh, I dunno how quite that works, but gives tips as to how much to, uh, when to buy, how much to buy, which stocks to buy. And she actually gives ticker names and the quantities to buy.

[00:09:46] Bob: Okay. At this point you might be thinking, at least, I hope you're thinking, taking exotic investment tips from someone in an internet chat room is dangerous. But here's the thing, these tips aren't exotic at all. Ava tells Karen to invest in everyday companies with names, you know, following tips, allegedly from a well-known financial advisor. I won't tell you the names of the companies, we don't give stock tips here, but trust me, they're all Fortune 500, Fortune 100 companies and…

[00:10:20] Bob: You were investing using your own regular brokerage account, doing this?

[00:10:23] Karen: That's the thing I have my normal account is in Fidelity. I was just doing it through Fidelity and just seemed quite normal. You know, you're just buying and selling. They tell you when to buy, when to sell.

[00:10:35] Bob: And Karen is doing really well throughout the fall, she sees her portfolio go up faster than maybe it ever has. And remember, she's investing in her own account. So Ava, Bert, everyone else in the VIP room, they aren't making any money off Karen.

[00:10:53] Karen: Uh huh. Yeah. I didn't like put a lot of money in, I was just testing the waters, but mm-hmm. But I tested, I made money, uh, on what, what I was testing.

[00:11:01] Bob: And also, they're not getting anything out of this, right? They're just giving you suggestions. It's not like they're making a commission, right?

[00:11:07] Karen: No, no.

[00:11:08] Bob: So this VIP chat room feels even more like maybe not a loud bar on Wall Street, more like…

[00:11:14] Bob: This wouldn't be any different from somebody at the coffee shop saying to you, Hey, you should invest in Microsoft, right?

[00:11:21] Karen: Yeah.

[00:11:22] Bob: I mean, it would feel just like that. You go home, you use your own broker, you invest, you make some money. Like, hey, that guy at the coffee shop, he's smart.

[00:11:27] Karen: Uh huh. Yeah. Yeah. In, in fact, I had a friend who once told me she was on a, a, a flight going somewhere and just some random guy just told her about this penny stock to invest. She went home, she put money in it, and then a couple of days she sold it like the guy told, and she made a hundred thousand dollars.

[00:11:47] Bob: Oh boy. We all have heard these stories

[00:11:51] Karen: And she's a good friend. I, um, you know, I, I would have no reason not to, not to believe her.

[00:11:58] Bob: Oh, I hope she took you off for a nice lunch after that.

[00:12:01] Karen: Oh. Um, she told me after the fact.

[00:12:05] Bob: So there's this lovely situation where you're chatting with these folks who share some things about their personal life but mainly tips, and they help you invest in your life and make some money. How long does that go on for?

[00:12:17] Karen: About, uh, the October, Nov, uh, two months.

[00:12:21] Bob: And as the calendar turns towards winter, the conversation in this VIP chat room, it turns colder too.

[00:12:29] Karen: And then around November time they start to say, oh, the econ, the economy is gonna crash soon. Don't trust the US economy.

[00:12:38] Bob: The US economy is going to crash? They all seem to agree, but there is a safer option out there.

[00:12:46] Karen: Um, put your money in Asian stocks in the Hong Kong stock exchange. And they have all these reasons why the US market is gonna crash and that these stocks are up and coming in the Hong Kong stock exchange, and I'm familiar with, uh, the Asian culture, so I had no reason not to necessarily distrust some of these recommendations.

[00:13:12] Bob: Investing in Asia isn't an outlandish idea, but there is a hitch.

[00:13:18] Karen: They were recommending certain Asian stocks just to get your feet wet, but through Fidelity, I was not able to purchase those stocks.

[00:13:27] Bob: Karen has to open a new brokerage account to trade in the stocks her chatroom friends are recommending, but that's okay, she's heard of this broker before and it's legitimate too.

[00:13:39] Bob: So what kind of Asian companies are Asian stocks? Were they suggesting you invest in?

[00:13:42] Karen: One was called Dream Host.

[00:13:44] Bob: Dream Host. What, what did they do?

[00:13:46] Karen: They were like, uh, entertainment. They, they suggested several different ones and I, I, I think one was like entertainment because I know in Hong, in Hong Kong they have Ocean Park and they were saying at one point that they had invested in Ocean Park and I was completely familiar with Ocean Park. So again, I had no reason not to distrust them on that.  

[00:14:09] Bob: And as in the fall, Karen continues to profit from their suggestions. This group seems to be right about all their tips.

[00:14:18] Bob: You spent almost a month investing in Asian stocks as well?

[00:14:21] Karen: Yes.

[00:14:22] Bob: And did, did they go up or down?

[00:14:23] Karen: Yes. Uh, I made money.

[00:14:27] Bob: So as the holidays approach, Karen is feeling pretty great about her new friends, about her swelling portfolio, about her new investing wisdom. And she sits down for a holiday feast with family.

[00:14:39] Karen: Yes. I was actually visiting my daughter in a, in a different state.

[00:14:43] Bob: Okay, so you're visiting your daughter, you have a nice dinner. After dinner, you just open up your computer, or look on your smartphone, right? Is that what happened?

[00:14:51] Karen: Uh huh, yes.

[00:14:53] Bob: Like most of us Karen can't help but sneak a peek online, even on a big holiday and she takes a look at her portfolio. Since Asia is on the other side of the world, it’s already December 26th there and the Hong Kong market is already open.

[00:15:08] Bob: So what do you see?

[00:15:09] Karen: 20 minutes later, the stock dropped to virtually, um, let's see, um, like 80% of the value.

[00:15:18] Bob: Oh my God.

[00:15:19] Karen: Yep.

[00:15:21] Bob: Karen's portfolio is crashing. She's lost tens of thousands of dollars, 80% of the money she invested. So of course her next click is.

[00:15:32] Bob: You see that you've lost all this money, you go to the chat room. Uh, is everybody else in the chat room freaking out?

[00:15:37] Karen: Uh, well, I, I immediately texted Bert because he said he also invested, he said he lost money and he actually brought in a friend, uh, who also lost money. And he said, “Oh no, Ava said we were gonna recoup the money.” Assuring me. And so I kind of, a little bit, I was Okay. Um.

[00:16:00] Bob: Karen sells what she can, gets about 20 cents on the dollar. But Ava had assured both of them, everyone in the chat really, that they couldn't really lose money. There was a guarantee of sorts that if things went south, they'd be covered.

[00:16:15] Bob: Then you go right to the chat room. Right?

[00:16:17] Karen: Right. And, and then because they, they say prior to you investing that if you lose money, they will compensate up to 70% of your losses.

[00:16:28] Bob: They will compensate 70% of the losses? In theory, that's comforting, but it actually doesn't make sense to Karen.

[00:16:37] Karen: So you, you kind of have this confidence. Okay, so even if, if I lose, um, 30%, it'll be okay because they will, they will give you back the, the 70. But part of this is that what, whatever is left that you have, because after you, uh, sell, you still have a little bit of capital left because it doesn't go all the way to zero. And they say, “Well, the recovery plan is that you actually have to buy into different stock and make money on a different.” It's not like they were going to give you the money, but they didn't tell you that upfront that, you know, you're, you're under the assumption that they are actually somehow gonna compensate. And so what it is is that they to find out later that you actually, in the recovery plan, they have, you put your remaining money in another stock.

[00:17:30] Bob: The guarantee is just another stock tip. Ava promises that stock will soar and the losses will be recovered. Well, that is too much for Karen and she folds to use a poker term.

[00:17:45] Karen: And I thought, nah, I'm not, I'm not gonna take a risk and, and lose everything. So I, I didn't continue putting money. I said, “You know what, I'm just gonna..” I guess you have to know when to walk away from something. Cut your loss. And so I thought, I'm just gonna cut my losses.

[00:17:59] Bob: Mm-hmm, yeah. How long did that take for you to realize then?

[00:18:01] Karen: Um, oh, about a week. A few days. Within a week.

[00:18:04] Bob: Okay. So by New Year's you realized

[00:18:06] Karen: Oh, yeah. Yeah. Most definitely. Yeah. By New Year's. Yeah.

[00:18:10] Bob: So Karen walks away with a little bit of her money left while others keep following the VIP room advice, and they keep losing more. And as the calendar turns to January, Karen starts investing another way.

[00:18:24] She invests her time in an investigation and she starts googling about that chat room and…

[00:18:32] Karen: And then it, it brought me to Reddit, and then I, I found out that there were all these other people who were involved in the same scheme that had the same thing, the same date, same everything.

[00:18:45] Bob: There's a whole community of people who followed this investing advice that seemed to be so good until it wasn't. Here's just a couple of the comments I found on Reddit. Portions of a thread discussing investment tips from a man named Jess Parker and his supposed assistant Eva.

They lured me into it with a few small positive investments over the past few months, and then convinced me to invest in this Hong Kong stock that crashed from a dollar 50 to 8 cents in a span of a few hours, and I lost 95% of my investment.

Same here. Yesterday was a disaster. I lost 95% of my savings.

Yes, I lost 70% of my IRA last night. I'm devastated. I was up over a hundred percent. They had 100% success until last night.

[00:19:38] Karen: And so we actually formed a WhatsApp group for us to try, and we kind of banded together to try and seek attorneys to see if we could do what we could do. We all filed FBI, reports to the FBI, the SEC, FINRA, uh, you know what, whatever agencies could be responsible. We all filed complaints to, uh, interactive broker, but nobody seemed to be able to help us.

[00:20:06] Bob: Karen had lost a lot of money, but nothing compared to some victims.

[00:20:12] Karen: Oh, yes. There were people that even lost over a million dollars.

[00:20:15] Bob: That's crazy.

[00:20:16] Karen: I mean, yeah, for me, my loss was very, quite small compared to some of these. I mean people, some people lost their life savings on this. I would say the average loss is about 200,000.

[00:20:29] Bob: Wow.

[00:20:30] Karen: Yeah.

[00:20:32] Bob: Karen and all those chatroom friends who clicked on a link thinking they were getting advice from famous investors, well, none of them had directly sent money to a criminal. None had opened up an account at a fraudulent website or been manipulated into purchasing cryptocurrency or anything like that. They'd all bought stocks from legitimate sites and after a good run, seeing their investments plummet in value through a very modern version of an old investment scam called “pump and dump.” And as you might have guessed by now, none of those famous people in the ads and Jess Parker had anything to do with these groups.

[00:21:08] Bob: Now, had you heard the term “pump and dump” before this happened to you?

[00:21:12] Karen: I had, but I wasn't too familiar with it. And I wasn't sure if it was legal or not, or you know exactly how it worked, because you hear all the time and people lose money on the pump and dump. But I wasn't quite sure how the whole thing worked.

[00:21:28] Bob: Here to explain how the whole thing works is Ryan Snover, a managing partner at Aristia Wealth Management in Nashville.

[00:21:36] Ryan Snover: So the idea behind a pump and dump scheme is we want to take a low-price stock and get as many victims involved as possible for the sole purpose of raising the price of that stock. And so it doesn't matter how the company's doing, it doesn't matter the fact that there is probably no real company involved whatsoever. They're just trying to drum up enough interest. They get people to invest money for the sole purpose of raising the price of that stock. Once the price of that stock hits a certain level. The dump part happens, the scammers and the people that are perpetuating this then immediately sell all of their shares. And again, this can happen in a matter of hours. Once those shares are sold, the stock has been pumped up. They've made their profit, they've dumped it. All of the hundreds and thousands of people that have been tricked into buying this particular security are left with essentially nothing.

[00:22:23] Bob: And this works on thinly traded stocks because it's just easier to get. A smallish group of people to raise the price on that stock. You couldn't do this with Microsoft, right?

[00:22:31] Ryan Snover: Well, that's exactly right. There's no way that any, any particular individual or any group of individuals is going to meaningly change the price of a large stock like Microsoft or Home Depot or Amazon. But if you have a stock that trades for 10 cents a share, and there's only a hundred thousand dollars where you could buy the entire company for a hundred thousand dollars and it doesn't take that much activity to drum up the price of that stock, and so that's why they focus on them.

[00:22:57] Bob: Thinly traded stocks, sometimes called pink sheet stocks.

[00:23:02] Ryan Snover: And so the reason they're called pink sheets is because a hundred years ago, very, very low price securities stocks that traded for for pennies were actually passed around and traded with physical pink pieces of paper, and the name has stuck. So the idea behind this, and the reason that these, uh, criminals and scam artists tried to perpetuate this is because they want to take. A small price stock that maybe cost 10 cents a share, and they try to get victim very excited about it and balloon up the price of this stock to a dollar, $2, $5 a share. And keep in mind, there's no company, there's no real profit. These companies in all manner don't exist. Except for the fact that somehow they were able to get listed. And so once the stock price hits a certain level, the scammers sell immediately and get out. And this can happen in a matter of hours. And the next thing you know, somebody that's invested 10, 65,000, a hundred thousand dollars is left with nothing,

[00:23:59] Bob: Which is what happened to Karen and all those other people in that chat room.

[00:24:03] Ryan Snover: Uh, it's just awful. And it's, um, you know, it's, it's interesting when you read through Karen's particular situation because I think often we assume these types of scams and these types of, um, schemes that people will be involved in would prey on the uninformed and would prey on, on people that don't have a lot of resources and that really have very little experience. As you can see, Karen had experience, different types of investments, and had found some success herself.

[00:24:30] Bob: The script that Karen's criminals followed, well, it's one Ryan has seen before. It begins by invoking the name of a famous investor or a brand name broker, and moves through steps designed to build trust.

[00:24:43] Ryan Snover: Exactly, and it's very interesting the pattern that she experienced because it's so similar, uh, in almost every case, and there's a reason that it's similar. It's because it works. The pattern is, is very clear, especially for somebody that has a little bit of investment experience. And that pattern is nobody is going to click on, on a link or invest in some random company completely out of the blue. But what they might do is take advice for a more familiar company. They may take some advice for something that's a logical, that makes sense, that has a proven track record. And so what these companies will do is set up a system of providing advice that's actually okay. And once you're bought into that, once you've seen, okay, I bought some of the S&P 500, like they recommended that I do, and I've made a little bit of money, then they feel like they have some buy-in. And for Karen, that's exactly what happened. She had experienced some actual returns, and then the scheme starts,

[00:25:43] Bob: As I mentioned, pump and dump stock scams have been around for a long time. But plenty of factors make them even easier to pull off now at scale than in the past. A really big factor is the ease of placing ads like this one on social media sites like Facebook.

I'm Bill Ackman, founder of Pershing Square Capital Management. My journey has been marked by numerous setbacks, but also by incredible recent successes. In a short time, I've amassed considerable wealth and now aim to pursue more meaningful endeavors. My success owes much to your support, and I feel obligated to help more Americans enjoy prosperous, free lives. I'll share valuable insights and intriguing updates in my group. I invite you to click register now below to join our WhatsApp community and access the 2024 Stock Wealth Code.

Only one problem. That ad is fake. Bill Ackman, in this case, is fighting a battle to get ads like this off of Facebook. The Wall Street Journal recently ran an investigative piece about the proliferation of ads like this one and many others like it using the name and image of famous investors exactly the kind of ad Karen clicked on. FINRA, the security industry regulator has issued a warning about fraudulent investment groups like this, and the Federal Trade Commission says imposter scam losses like this have tripled between 2019 and 2023.

[00:27:11] Bob: You know, the ads use famous investors like Steve Cohen or Ray Dalio or Kathy Wood, and that's part of how they attract victims.

[00:27:19] Ryan Snover: It's very interesting because you see these things come in waves. And so right now the, the wave a few years ago used to be celebrities. I mean, it was celebrities promising, uh, you know, certain types of actual cash, but now we're seeing ads from Elon Musk and, and like you said, Bezos and all manner of billionaires that supposedly, all of a sudden, have, uh, a heart of gold and wanna pass along some of these secrets. And of course, the reason they do that is credibility. As soon as you see somebody that clearly has been successful in their field, and there's a compelling story about why they would want to share some of that wealth and let other people in on the secret, it lowers that threshold, uh, vulnerability. It allows that back part of your mind to take over that says, maybe this is legitimate. And most people are still skeptical, but there's just enough there that some will be able to click on that and say, I just wanna find out a little bit more. It's probably not the truth. And then that's when they start the process of developing the scam.

[00:28:15] Bob: Other factors make this kind of celebrity-led pump and dumb scheme even easier.

[00:28:21] Ryan Snover: It is becoming easier and easier for the scammers to do this overseas. This used to be something that happened stateside and it, it still does to a certain degree, but much less so. The regulators, the SEC FINRA and the Justice Department have taken huge steps at eradicating this type of pump and dump scheme on this on our shores. But overseas there's much less regulation. And even in cases, you know, China has stepped up some of their regulation over the last 10 years or so, but they just don't have the apparatus and the framework or the will to go after some of these people that are doing it. And secondly, it's very difficult to keep track of this overseas. And so when you have multiple countries and multiple jurisdictions, you may have a Chinese company that's being owned and traded by somebody in a completely different country. You know, it could be Bangladesh, it could be Pakistan. It's very difficult for somebody in the United States to then track down and figure out, well, who is really responsible for all this?

[00:29:18] Bob: A key element in the scam is to get people into online chat tools away from any kind of regulated environment and into something that feels exclusive.

[00:29:29] Ryan Snover: The first step is they move off platform, so they'll completely take them away from the original platform of Facebook or Instagram, wherever it was, that the, the first interaction was and move them to a private server. And there's a couple of reasons for this. The first reason is, is that it's harder to track. The second reason is, is that it plays on our innate human desire to be on the inside to feel like we're a part of something that other people aren't. And so by moving off platform, what they're saying is, look, this is not something that we can give to just anybody, but we realize that you’re special, that you have a unique vision. And so we wanna offer you something that other people just don't get. So let's go over here to WhatsApp and we'll tell you the real insider information. And once they do that, then they start layering in the suggestions that are illogical, that don’t make sense but by that point, there’s been enough steps in the process that some of those initial warning signs and, and red flags that go off and all of us have been knocked down to where, just more susceptible to taking poor advice.

[00:30:33] Bob: Karen didn't give up after she found all those other victims on Reddit. Together, they tried to get some of their money back, but…

[00:30:42] Bob: So what was the end result of the, the Reddit, WhatsApp group? Did you get anywhere?

[00:30:47] Karen: We weren't able to actually find a resolution through, uh, through, so we, it's more like a support group.

[00:30:55] Bob: Mm-hmm. Mm-hmm. Sure. Are you still in touch with them?

[00:30:57] Karen: Yes. We always post links and articles about what's going on because these schemas are still very active. They're still out there.

[00:31:07] Bob: Together, the victims make an important discovery, however. Those crowded chat rooms where everyone seemed to agree on stock tips. They weren't so crowded after all.

[00:31:17] Karen: I think behind all this is AI generating responses.

[00:31:22] Bob: Mm. Oh wow. But well, that's what the, the Wall Street Journal story said sometimes, you know, WhatsApp groups with 50 people and there's maybe only one or two real humans in there. And the rest are bots.

[00:31:32] Karen: Yeah.

[00:31:33] Bob: They're all saying the same. Oh yeah. This is a great investment. Wonderful. Yeah.

[00:31:35] Karen: Yeah. Because, um, you know, WhatsApp group, we were all finding. A similar pattern of the, some of the responses we got, some of the recommendations that we got. So you wonder like, how does one person interact with so many people all at the same time?

[00:31:52] Bob: Mm-hmm.

[00:31:52] Karen: Yeah.

[00:31:53] Bob: Well, he's got, he's got help is how it is. Yeah.

[00:31:56] Bob: The chat room isn't staffed by a big team who's all in, in the pump and dump scheme. It's staffed mostly by bots, robots lines of computer code that generate responses which give the appearance of being human. Just enough to feel like it's a big crowd. So between the celebrity endorsements and the AI generated chatter, well, criminals in these fake investment chats really have the upper hand. Karen didn't wanna share exactly how much was stolen from her in the scam. She said the amount was under a hundred thousand dollars. A lot, but fortunately not as devastating for her as for others.

[00:32:36] Karen: Um, I, I wasn't quite, it was cash that I had. I wasn't quite dependent. I knew that if I lost it, then I lost it.

[00:32:43] Bob: Oh, good for you. Yeah. That's a mistake most people. Yeah. Yeah.

[00:32:46] Karen: Yeah. It, it wasn't, it wasn't, it wasn't as devastating as some of these people lost hundreds of thousands and even millions. Yeah.

[00:32:57] Bob: As far as Karen knows, no victim has recovered even a single dollar, and that has led Karen to a frightening conclusion.

[00:33:07] Karen: I think that's another thing to be leery of. And so the SEC, you can't, they can't do anything. I filed a police report. There's nothing they can do because it, even though it, it occurred in the US but the company, Hong Kong has their own securities and futures commission. I felt, many of us filed a complaint with them. But even on the US side, that, uh, it seems like Nasdaq people have. I filed, um, I think I wrote a letter some people wrote letters to, to, to Nasdaq. There's nothing they can do either, so I'm just thinking there must be something somebody can do to stop these criminals. It's not, it's like a whole mafia and, and they're un seem unstoppable.

[00:33:48] Bob: They seem unstoppable. Yeah. That's a mouthful.

[00:33:50] Karen: Yeah, they are unstoppable.

[00:33:54] Bob: Unstoppable. Or at least it seems that way. That's why it's important to hear the suggestions Ryan has to better understand what's happening and how you can protect yourself.

[00:34:05] Ryan Snover: What's interesting about this particular type of, of scam is that it, it's nothing new. The mechanism is new, but this is something that's been going on for 30 years. There's even a movie about it, probably know called Boiler Room. When I was a young, bright-eyed, uh, brand new stockbroker, at a Big Wall Street firm, we used to be targeted all the time by these so-called boiler room brokers. They would call with names like this is Big Apple investments. They would never call the senior guys. They would always call the brand-new brokers and they would say, we've got a deal that we found a new medical company and they have a new way to do surgery. There's a new surgical wash that prevents infection. It's nothing. It's like nothing you've ever seen. And here's the thing, because Ryan, you are so good at your job, we're letting you in on this secret. And it's getting ready to go big. It's not approved yet, but it's going to go. And when it's approved, you're gonna make your clients millions and millions of dollars. And of course, this company likely didn't exist. They were a listed company, but they were trading for 10 cents, 20 cents a share with the promise that it was gonna go to a hundred dollars a share. And they preyed on new people because oftentimes they didn't know any better.

[00:35:13] Bob: But as I mentioned at the beginning of this podcast, this old-fashioned scam is much easier to pull off now.

[00:35:21] Ryan Snover: The difference now is you don't have to use the middleman. There's no need to have a room full of boiler room scam artists calling all of these financial advisors, trying to convince them to sell this junk to their clients. Now, they can have one person in a room with a computer, whether that be stateside or whether it be in Hong Kong or Bangladesh, or anywhere else in the world, and touch hundreds of thousands of people very quickly with ads through Facebook. And the way that they do it is they create ads that are compelling. And once you've clicked on some of those ads, sometimes even real legitimate ads, they're able to see that data and distill it down and develop a profile of who is likely to fall victim to these types of, of scams that we're, we're trying to perpetuate. And so when they have that data, then they can target the individuals and it's much quicker and, uh, much harder to track down than it used to be with physical phone calls. That's, there's no need to do that anymore.

[00:36:15] Bob: And just to put a fine point on it, a pump and dump scheme is illegal, right?

[00:36:19] Ryan Snover: Absolutely. Um, there's nothing wrong with, uh, touting a particular stock. I think one of the reasons that right now this is becoming so prevalent is because a couple of years ago, there was a legitimate case of a pump and dump so-called scheme, although that wasn't the case at all. Uh, and that was with GameStop. So you had a company that was a legitimate company and it was beloved. And for whatever reasons, legitimate or not, the price got extraordinarily depressed and it, it was way below what it should have traded at and technicals, notwithstanding, it was in a short squeeze and all of a sudden on Reddit, a, a gentleman, brilliant analyst said, “Hey, I think there's opportunity here.” And that took off like wildfire and all of a sudden, people on Reddit gamers, people that loved going and buying their stuff at GameStop started buying the, the stock in raising the price. And because there was a short squeeze there, it took off like wildfire. People made hundreds of millions of dollars. That is a legitimate case of touting a stock for a legitimate reason, and the price rises. The difference is that's an actual company that has actual revenue and the person that was perpetuating it really thought there was a case to be made. With these pump and dump schemes, you have shell companies that essentially don't exist and you have no financials, you have no prospects of revenue. That's why you don't see them listed on major American stock exchanges. You'll never find most of the companies that are involved in these schemes on the New York Stock Exchange or the Nasdaq. You're gonna find them in the OTC market because the requirements for a company being traded there are much, much lower. In fact, they're almost non-existent.

[00:38:04] Bob: I think what makes this so hard for the average consumer is you do hear these stories like Game Stop or Bitcoin or you know, you, you and a friend's uncle's brother actually made a hundred thousand dollars in a week, and so everyone thinks, you know, well, stuffy heads like me say you should invest for the long term. People hear these stories and so the dream is still out there. Right?

[00:38:24] Ryan Snover: Absolutely. Everybody wants to find, like you said, the next Bitcoin, the next Amazon, the next Game Stop and there’s nothing wrong with that. The problem becomes, once that risky, small proposition, which is just a roulette bet, becomes large and the victim begins investing larger and larger amounts of money. And once that money becomes substantial enough that it could be painful, if it's lost, then the danger begins because everybody is okay with going and buying a lottery ticket. And sometimes those lottery tickets pay off. The problem is when you invest your life savings in chasing after some of these lottery tickets, and like we said, in most cases, uh, the tickets don't exist at all.

[00:39:07] Bob: Just a roulette bet. That's really good advice.

[00:39:10] Bob: Going to a casino with money you can afford to lose, if you like doing that, that's your business. But no one should gamble with money they need for retirement. And as for stock tips and financial advice, how do you know someone is trustworthy? Well, there's never any guarantee, but there are some standards you should know about.

[00:39:29] Ryan Snover: The first step is if you're going to take advice from somebody, make sure that they have licenses. Go to broker check com, take a look at their background. A website is not enough. We all know it's easy enough to just find, uh, to create a, a pretty looking website, but find out what is this person's background. Don't trust the track record that they've given you online because many of them will promise, oh look, I've made a thousand percent on the last 10 trades that I've made, but that's unverifiable. You need to go and do the research yourself and find out. Is this person's advice worthy? The second thing is don't move off platform. Whatever initial platform, if you're going to take advice online, don't be tricked into moving into a different area. Don't go to WhatsApp. Don't go to a more private setting because that's where the scam begins. The other part of that is be aware of the fact that you may start out with things that make sense. You may start out with logical advice, logical trades, but that's only to subdue the red flags that would naturally pop up as soon as the non-logical advice starts to pop up. As soon as the things that go that's, that's a pin in my mind, I'm not sure if that makes sense. That's when the red flag should go up and you should stop following advice without further research, because that is the pattern as old as time. Of how they get step by step by step, more of a person's money. And the last thing is you can only lose what you put in. And so if you're walking by the roulette table and you absolutely cannot help, you have to put a hundred dollars on red. This person's advice is too good. The idea of the a space company, it's just too compelling and you cannot pass it up. Then keep in mind, more than likely, that's never going to materialize. So you must keep your investments modest. And even if by some chance, you happen to see a small bit of success. You need to keep it small because there's no guarantee that that small amount of money is going to become a large amount of money. People ran into this in the late nineties. They made some money in tech companies, and the next thing you know they were buying up startups that that had no business whatsoever left and right with their life savings. And then of course, in 99, the market collapsed and they lost everything. That never would've been a problem if they had kept the investments small and modest as their original intention was. So you can only lose what you put in.

[00:41:45] Bob: You can only lose what you put in. For The Perfect Scam, I'm Bob Sullivan.

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[00:42:00] Bob: If you have been targeted by a scam or fraud, you are not alone. Call the AARP Fraud Watch Network Helpline at 877-908-3360. Their trained fraud specialists can provide you with free support and guidance on what to do next. Our email address at The Perfect Scam is: theperfectscampodcast@aarp.org, and we want to hear from you. If you've been the victim of a scam or you know someone who has, and you'd like us to tell their story, write to us. That address again is: theperfectscampodcast@aarp.org. Thank you to our team of scambusters; Associate Producer, Annalea Embree; Researcher, Becky Dodson; Executive Producer, Julie Getz; and our Audio Engineer and Sound Designer, Julio Gonzalez. Be sure to find us on Apple Podcasts, Spotify, or wherever you listen to podcasts. For AARP's The Perfect Scam, I'm Bob Sullivan.

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