Common Stock Market Scams and How to Spot Them

Most stock market scams work the same way: someone you do not know offers you a stock, a trading platform, or an “exclusive” group with unusually high, low-risk returns, and the real product is your money moving into their hands. The specific script changes with technology, from boiler-room phone calls to WhatsApp groups and deepfake videos, but the warning signs barely change at all.

In short: an investment scam is a scheme that uses false or misleading claims to get you to hand over money, either by buying something worthless at an inflated price or by depositing funds with someone who never invests them. The US Securities and Exchange Commission (SEC) and the Canadian Securities Administrators (CSA) repeat the same core advice: be suspicious of unsolicited offers and guaranteed returns, and check registration before you invest a dollar.

1. Pump and dump

A pump and dump is the oldest stock scam still in common use. The scammers:

Quietly buy a large amount of a small, thinly traded stock.
“Pump” it with exciting claims: a breakthrough product, a takeover rumour, a price target, a claim that “big money” is coming.
Sell (“dump”) their shares into the buying they created.

When the promoters stop, buyers disappear and the price falls, often below where it started. Late buyers are left holding the losses.

Pump and dumps favour penny stocks and over-the-counter shares because a small amount of buying can move their price a lot. Thin liquidity is what makes them work.

The modern version runs on social media and chat apps. In December 2022 the SEC charged eight people it described as social media influencers in an alleged scheme to manipulate exchange-listed stocks using Twitter and Discord. According to the SEC, the defendants bought stocks, encouraged their large followings to buy by posting price targets or saying they were holding or adding to their positions, and then sold without disclosing that plan. The SEC alleged roughly $100 million in fraudulent profits. (These were allegations at the time of filing, not findings.)

The SEC’s investor alert on group chats warns that fraudsters use investment chat groups to run pump and dumps, and that a group chat where strangers give you investment advice is often how a scam begins.

A worked example: why the last buyers lose

Suppose a promoter buys 2 million shares of “Northshore Lithium Corp.” (hypothetical) at $0.10, spending $200,000. A chat-group campaign brings in a wave of buyers and the price rises to $0.50. The promoter sells all 2 million shares into that demand at an average of $0.40, collecting $800,000, a $600,000 profit.

You bought 10,000 shares at $0.45 near the peak, spending $4,500. When the promotion stops, the price slides back to $0.08. Your shares are now worth $800. You have lost $3,700, about 82%, and that money is, in effect, part of the promoter’s profit.

2. Fake advisers and unregistered platforms

Many scams don’t involve a real stock at all. Instead, a person or website claims to be an investment adviser or trading platform, takes your deposit, and shows you a dashboard where your balance grows. When you try to withdraw, there are new “fees” or “taxes” to pay first, and eventually the site disappears.

The SEC described one such scheme in an alert about investment clubs on WhatsApp: social media ads, including deepfake videos of prominent financial professionals, invited people into chat groups run by “professor” and “assistant” personas, who then steered members onto purported trading platforms. The SEC alleged investor losses of more than $14 million.

These schemes are often combined with relationship scams, where a stranger builds a friendship or romance over weeks or months before introducing an investment opportunity.

3. Ponzi schemes

A Ponzi scheme pays earlier investors with money from newer investors rather than from real profits. It needs a constant stream of new money, and it collapses when withdrawals exceed deposits.

The largest known example is Bernard L. Madoff Investment Securities. Madoff reported steady, smooth returns for decades. The scheme collapsed in December 2008. The court-appointed trustee has estimated that customers who filed claims lost about $17.5 billion in principal. Through years of litigation and settlements, the trustee had recovered more than $15 billion as of early 2026, an unusually high recovery that took well over a decade.

The red flag Madoff shows: returns that are too consistent. Real investments have bad months. A record with almost none is a reason for more scrutiny, not less.

Affinity fraud

Ponzi schemes often spread through affinity fraud: targeting members of a religious, ethnic, professional, or community group, because people trust those who share their background, and early “winners” recruit their friends.

4. Impersonation scams

Scammers increasingly pretend to be someone you would trust:

Real firms. Fake websites and social media accounts that copy the name and branding of a legitimate, registered firm. Because the firm being copied is registered, a quick registration check can be fooled. Contact the firm using details you find independently, not the ones in the message.
Regulators. The SEC has warned about impersonators using its seal or the names and photos of real SEC officials on social media and in text messages. The SEC does not endorse investment groups or contact people to recommend investments.
Public figures. Canadian provincial regulators have issued repeated alerts about fake news articles and AI-generated videos claiming that well-known Canadians, including a Prime Minister and a celebrity entrepreneur, endorse online trading platforms. They do not.

The CSA has specifically warned that images, voice calls, and video meetings can now be manipulated with AI. Seeing someone’s face on a video call is no longer proof of who they are.

5. Other common variants

Pre-IPO and private placement offers. A chance to buy shares “before they go public.” Most such offers to the public are either illegal or fraudulent. See how IPOs work for how real offerings reach investors.
Recovery scams. After you lose money, someone offers to recover it for an upfront fee. This is often the same group targeting you a second time.
High-yield “guaranteed” notes. Promises of fixed, high returns with no risk. In regulated markets, higher returns come with higher risk.

Warning signs regulators flag

Across SEC and CSA alerts, the same signs come up again and again:

Warning sign	Why it matters
Guaranteed or unusually high returns	Real investments can lose money
Pressure to act now	Urgency stops you checking
Unsolicited contact by text, social media, or chat app	Legitimate firms rarely cold-pitch this way
Unregistered seller or platform	Selling securities generally requires registration
Payment in crypto, gift cards, or wire to an individual	Hard to trace and reverse
Fees or “taxes” required before you can withdraw	A classic sign the balance is fictional
A celebrity or official “endorsement”	Often fake, increasingly AI-generated

How to check before you invest

Canada: search the CSA’s National Registration Search at aretheyregistered.ca, and check your provincial regulator’s warning and caution lists. Firms dealing in stocks should also be members of CIRO.
United States: check brokers and their representatives on FINRA’s BrokerCheck and investment advisers on the SEC’s Investment Adviser Public Disclosure site. Investor.gov offers a combined search.
Look up the company. Real US public companies file with the SEC on EDGAR; Canadian issuers file on SEDAR+. No filings is a serious warning.

The roles of these regulators, and what investor protection does and does not cover, are explained in how stock markets are regulated. Note that SIPC and CIPF protect you if a registered member firm fails; they do not cover money lost to fraud by an unregistered party, or losses from buying a stock that turns out to be worthless.

What to do if you think you’ve been targeted

Stop sending money, including any “fee” to unlock a withdrawal.
Keep records: messages, account statements, wallet addresses, payment receipts.
Report it. In the US, to the SEC (sec.gov/tcr) and the FBI’s Internet Crime Complaint Center. In Canada, to your provincial securities regulator and the Canadian Anti-Fraud Centre.
Tell your bank or broker quickly; some transfers can be stopped if reported fast.
Be wary of anyone who contacts you offering to recover the money.

The short version

Stock scams come in a handful of shapes: pump and dumps, fake advisers and platforms, Ponzi schemes, and impersonation of firms, regulators, and celebrities. They share the same tells: guaranteed returns, urgency, unsolicited contact, and unregistered sellers. The single most useful habit is checking registration on aretheyregistered.ca or BrokerCheck before you invest, and treating any investment advice from a stranger in a chat group as a likely scam. The broader set of risks that are not fraud is covered in stock market risks explained honestly.