Pump and Dump: Criminal Law & Regulatory Review
Market manipulation through pump and dump schemes has evolved from boiler rooms and cold calls to sophisticated digital operations. What once required armies of brokers now happens through instant messaging groups, social media campaigns, and algorithmic trading—transforming penny stocks and cryptocurrencies into weapons of mass deception.
Three elements drive these schemes: false representation through misleading information, coordinated buying to create artificial demand, and the strategic exit that leaves victims holding worthless assets. The legal framework spans from the Fraud Act 2006’s provisions on dishonest representation to specialized regulations under FSMA and MAR, turning market manipulation from a grey area into prosecutable criminal conduct.
The anatomy of deception
Modern pump and dump schemes leverage technology to orchestrate mass financial fraud. Operators recruit participants through channels explicitly advertising their intentions, coordinate purchases down to the second, and profit from information asymmetry that would make traditional fraudsters envious.
The Wrong Number Scam of 2005 exemplifies the evolution—910,000 fraudulent voicemails masquerading as mistaken hot tips. Today’s schemes are more subtle: influencers with undisclosed positions, coordinated social media campaigns, and algorithmic amplification that creates the illusion of organic market interest.
Legal boundaries & enforcement
The challenge lies in proving dishonesty when participants claim they’re merely enthusiastic investors. Cases like Navinder Singh Sarao demonstrate that courts can pierce through sophisticated facades, recognizing false representation even when wrapped in legitimate market mechanics.
Yet enforcement remains fragmented. The FCA handles market abuse, while criminal fraud falls to the CPS. Private prosecutions face hurdles, as Burford Capital discovered when seeking Norwich Pharmacal relief. The result: a regulatory maze where market manipulation thrives in the gaps between jurisdictions.
The enforcement challenge
Prosecutors face a perfect storm: proving intent in a sea of plausible deniability, coordinating across multiple jurisdictions where servers, operators, and victims span continents, and keeping pace with schemes that evolve faster than legislation. The shift from result-based crimes to conduct-based offences under the Fraud Act 2006 helps, but questions of dishonesty remain contested terrain.
The Ivey case provides the framework—dishonesty judged by objective standards of reasonable people. But applying 18th-century moral concepts to 21st-century financial engineering creates friction. When does aggressive marketing become false representation? Where’s the line between market making and manipulation? These aren’t just legal questions—they’re existential challenges to market integrity.
Dive into the comprehensive analysis of market manipulation from a pan-European perspective. This monograph maps the evolution from historical cases like the 1814 Berenger scandal to modern cryptocurrency schemes coordinated through Discord and Telegram. Explore how different jurisdictions—US, UK, and EU—approach the challenge of defining and prosecuting market manipulation. The paper examines the regulatory frameworks of MAR, MAD II, and MiFID II, dissects the LIBOR/EURIBOR manipulation saga, and questions whether international coordination can ever catch up to the speed of digital fraud. Essential reading for understanding the structural vulnerabilities that enable pump and dump schemes to flourish in OTC markets and the emerging cryptocurrency ecosystem.
Focused specifically on English criminal law, this white paper examines whether Section 2 of the Fraud Act 2006 adequately criminalizes contemporary pump and dump techniques. Through detailed case analysis including Navinder Singh Sarao’s spoofing prosecution and Burford Capital’s failed attempt at private prosecution, the paper reveals the tensions between general fraud provisions and specialized market abuse regulations. It traces the evolution from the Theft Act 1968’s deception offences to the conduct-based approach of 2006, examining how courts apply the Ivey test for dishonesty to complex financial schemes. The analysis questions whether traditional concepts of fraud can encompass algorithmic manipulation, social media coordination, and the grey areas where aggressive marketing meets criminal misrepresentation—crucial for practitioners navigating the intersection of criminal and regulatory enforcement.