Marketing for A Pump and Dump Scheme
Don't Knock the Hustle Apparently
Key Judgements:
Even before the “meme stock” trends, there has been an industry surrounding penny stock pump and dump schemes orchestrated via apps such as Stock Twits.
Niche marketing firms offer packages to pump stocks by using their premade networks of social media influencers and bot accounts.
The amount of scams far outweighs the resources available to stop them, and you must do your due diligence.
Money is getting tighter, inflation isn’t stopping, and the scammers aren’t quitting. Their goal of finding people in dire financial straights and offering them a get-rich-quick scheme is as old as time. The only difference is that it has become more common online. From crypto pump groups on Discord led by influencers to the more common use of Stocktwits to pump microcap and OTC (over-the-counter) equities, the basics of the schemes don’t change, just the sophistication.
The SEC’s definition of a pump-and-dump scheme sums it up very well:
"Pump and dump" schemes have two parts. In the first, promoters try to boost the price of a stock with false or misleading statements about the company. Once the stock price has been pumped up, fraudsters move on to the second part, where they seek to profit by selling their own holdings of the stock, dumping shares into the market.
These schemes often occur on the Internet where it is common to see messages urging readers to buy a stock quickly. Often, the promoters will claim to have "inside" information about a development that will be positive for the stock. After these fraudsters dump their shares and stop hyping the stock, the price typically falls, and investors lose their money.
Most people understand a scam when they see it. Especially if they see lousy grammar or use of the language in social media posts while simultaneously trying to get you to invest in a specific product or service. But often there are other more sophisticated forces at work. Those forces make people who may be down on their luck financially susceptible to a well-placed marketing strategy or sales pitch that can help them out.
This is where companies like North Equities come in. Using social media marketing skills, they are a self-professed marketing firm designed to raise microcap stocks’ prices. After you pay them to increase the visibility and presumably the market price, you can pull your investment at a profit and leave the people who bought into the marketing holding the bag.
To be clear, this is a case of don’t hate the player, hate the game. Everyone has to find a hustle that works. NE is just an excellent example to use. They have great reviews, such as: “This is the way investors should be updated today, definitely the correct vision and execution that every company should be using”
However, Zane’s review may be a little disingenuous because he is also listed as their advisor on the site
Looking at some of NE’s claims we can find out if they are true or not just by looking at the charts.
Claim #1 Sharc) Raised average volume from 20k shares/day to 180k+ and share price went from $0.05 to $0.69 (nice)
As the chart below shows, there are potential points in time that fit this claim. This seems plausible, so this marketing firm can theoretically increase volume and presumably increase price through marketing alone, not by manipulating the price. But wait! They said they got the price to $0.69 (are they trolling here?) That stock has never hit that price in its lifetime by the time this is published. Claim #1 debunked.
Claim #2 Cybin) Average daily volume increased from 400k shares to over 1.8mm, and a price increase from $1.80 to $2.86 for Cybin a Toronto-based psychedelic medicine firm
The below graph shows two potential date ranges for this to have occurred, July and August of 2021
July 2021 sentiment analysis:
In July of 2021, there was an announcement that Cybin would participate in a joint venture with a larger Canadian company Greenbrook (GBNH). Since the announcement, both stocks have plummeted, with GBNH down ~72% since the news of the JV and CYBN down ~86%. Greenbrook has never seen volume like Cybin and only has two spikes over 100k/day. One was close to 6mm in daily volume, potentially coinciding with internal executives selling ownership to lock in any profits before their US IPO.
August 2021 Sentiment analysis:
Cybin was approved to trade on the NYSE in late July 2021, and their IPO occurred in August, coinciding with that volume increase. The question is, did the NE marketing push help Cybin, or was it general buzz? The extra marketing couldn't hurt, though. Again since the IPO on the NYSE, it is down ~84%
Summary:
There is a large amount of money to be made supporting the rise or fall of stock prices. Marketing firms can apply their crafts to make people want new shoes or to make them want to buy stock. Because there is a tremendous financial incentive for small companies to become publicly traded and then conduct some pump-and-dump scheme. You can never be too sure when dealing with cheap or penny stocks without any actual value. A cheap stock trending on Twitter or Stocktwits does not mean it's a sure thing, and everyone holding the bag on Nokia and the other Reddit stocks from 2021 can attest.