Recently, scammers have started to launch Pump and dump groups on social media as a front to trick their victims into depositing crypto assets into fake exchanges.
Pump and Dumps explained
Pump and dumps are one of the oldest and most common fraudulent investment schemes within the cryptoeconomy. The initiators of these schemes launch social media channels, most commonly on Telegram or Discord, to artificially inflate the price of tokens that usually only have a low market cap.
Typically, the initiators will announce a fixed date and time at which the pump happens and on which exchange the token is listed. Once that point in time rolls around, they drop the ticker symbol of the token and send a buy signal to members of the group. This creates a huge price spike for the token, which however only lasts a few minutes.
While this scheme is not technically illegal in the unregulated sphere of crypto assets, the only ones who are guaranteed to make a profit from these pump and dumps are the initiators themselves, since they know in advance which token will be pumped and can thus buy the token at the cheapest price. For all other participants, pump and dumps are gambles with unfavorable odds.
Inside fake pump and dump groups
If you are active in crypto Discord channels, you might have recently come across spam messages that advertise seemingly “transparent” pump and dump groups, which promise to announce the token in advance of the actual pump. If that was true, this would indeed give members of the group a chance to come up with a profit.
But as usual, if it sounds too good to be true, it most probably is. In reality, the scammers who operate these groups do not pump any tokens at all. Instead, they redirect their victims to a fake crypto exchange. Aside from getting their funds stolen this way, the victims also run the risk of identity theft if they leave their KYC information behind at the exchange.
This type of scam closely resembles the frontrunning bot scam, which became common in early 2022. The scammers set up an elaborate scheme and tell a convincing story about where their victims’ returns are supposed to come from. Most importantly, they convince their victims that they are participating in an immoral or borderline-illegal act, which reduces the chance that victims will report the scam to the police.