Investing is a risky business, but a lot of people do their best to minimize their risk by doing their research and diversifying their portfolios. Yet, even these maneuvers may not be enough to keep your investment safe. Sure, the stock market can be volatile from time to time, but your investment might also be subjected to fraud and unfair practices that run afoul of the law.
Perhaps the scariest part of this reality, though, is that you may be taken advantage of without the wrongdoers being held accountable unless you take action to stop them and recover what is yours. This means knowing what to look for and when to take your fight to the legal arena.
Beware of stock manipulation
The stock market can move quickly, and the best investors can make split-second decisions that can make them a significant amount of money. Sometimes, though, brokers and other investment professionals manipulate stocks so that they can make a quick buck, all at your expense. Here are a few of the ways they do that:
- Pump and dump: This is a manipulation strategy where false information is intentionally spread in hopes of artificially inflating the price of the stock. Those who manipulate the stock, which may include brokers but also business insiders, might start talking about a favorable contract for the business, developments of new technologies, or even potential mergers and acquisitions. As this news circulates, investors become enticed to purchase the stock, which sends the stock price up. Insiders then sell the stock at far more than it is actually worth. Once the truth comes out about the business’s position and the false information is discovered to be untrue, then the stock price drops and innocent investors are left holding the bag.
- Reverse pump and dump: Another manipulation tactic that is used is the exact reverse of the pump and dump. Here, insiders spread false information about a company so that its stock price drops. Once the price drops, the insiders buy up the stock, which is far more valuable than its stock price would lead you to believe. Again this causes investors to lose out on a stock that may have actually have been quite valuable. The information used to cause the stock price to drop might include poor revenue forecasts or the loss of a major contract.
- Painting the tape: This is a manipulation strategy where a group of people band together to trade a stock amongst themselves. The increased trading of the stock lures investors in, causing the stock’s price to rise. At that time, the original group sells off and the stock price tumbles.
- Wash trading: This type of trading is similar to painting the tape, in that an individual or group of individuals buys and sells the same security multiple times so that its trading volume increases. These volume increases often signal to investors that a stock is hot and worth buying. This investor interest causes the stock’s price to increase, at which time the wash trader sells off, causing the stock’s price to subsequently tumble.
Don’t chalk your losses up to bad luck
Most, if not all, investors have lost money at one time or another. But if you’ve lost a significant amount of money you shouldn’t just shrug your shoulders and attribute your losses to market conditions. Dig deeper. Ask yourself if it’s possible that you’re the victim of stock manipulation. If you have your suspicions or want help analyzing your situation to better determine if you’ve been victimized, then consider reaching out to a legal professional who can assist you in figuring out your best course of action moving forward.