If you are in the stock market for a while, then you might have heard about stock market scams. We have different types of scams based on how they occur.
Most of the time, you will find retail investors are tricked by misinformation, unsolicited stock tips and buy sell hold recommendations. Such activities can result in loss for the investors or traders.
In this article, we will be discussing a stock market scam which most often occurs in the financial market. It’s popularly known as poop and scoop scam.
What is Poop and Scoop scam?
In a Poop and Scoop strategy, a group of people try to drive down the price of stocks by spreading false information and rumors to damage market sentiment. It’s an intentional effort to influence the price of a security to trap common investors.
Most often Poop and Scoop type of fraud takes place in penny stocks as it’s very easy to manipulate due to lower liquidity.
They first “poop” so that stock price will come down to a level, then they buy or “scoop” the stock price at a lower price.
In other words, a well trained group of market participants deflate the stock price by spreading misinformation or rumors about a company or market. They then buy the stocks at a lower level and gain when the market gets to know about the misinformation.
Panic selling behavior of many investors and traders happen due to fake news, misinformation or rumors. Scammers take advantage of this behavior to gain from the stock market.
Poop and scoop strategy is the exact opposite of the pump and dump method.
Pump and dump strategy is most often used in the stock market than poop and scoop.
Poop and Scoop are not legal in the stock market. It’s considered as a stock market manipulation.
The main intention is to lower the price of a particular stock and buy the same stock at a discounted price to make profit when it bounces back to a normal price level. It can happen with a group of stocks or industry.
When the market understands the value of the company, the share price goes up, these scammers use it to sell their holdings for a profit.
Use of social media in poop and scoop scam
Nowadays social media platforms like Telegram channels, Whatsapp, Facebook and X (formerly known as twitter) have a great impact in spreading false information among the general public.
Scammers create fake social media profiles and SMS IDs which resemble famous stock brokers, securities research firms and investors.They spread false information by using these IDs which many market participants think are real.
Example of Poop and Scoop
A group of people spread false information through a report about a company or group that the top management has cooked the books of account to show higher net profit whereas in reality it’s much lower and the company is performing poorly.
They also spread sell recommendations on the related stocks as prices will fall badly further. The main intention of these scammers is to buy the stock at a lower level by misleading investors. This type of scam is referred to as Poop and Scoop.
Many investors and traders, due to panic, start selling off their stocks at every price point. At a very lower level, when panic selling stopped, these scammers buy stocks to build a good portfolio.
When the dust settled and market participants came to know about the misinformation, they started buying, due to massive buying pressure, stock price started moving up. At a predetermined level, these scammers exit the stock with huge profits.
As a retail investor and trader, you must be aware about these types of stock market scam to protect your portfolio.
Retail traders and investors are suggested not to buy or sell stocks based on tips and recommendations available on social media platforms, Aaps and SMSes, as nowadays these platforms are misused by many scammers to execute these types of scams.
Poop and scoop are also referred to as “Trash and Cash” or “slur and slurp” or “Short and Distort (Bear Raid)”.
In Trash and cash, a group of people will take short positions in a stock or group of stocks, then they undertake further selling activity and/or spread misleading negative information about the security with the main purpose of driving down its price. When prices are down substantially, they exit their position with a huge profit.
Disclaimer: In addition to the disclaimer below, please note, this article is not intended to provide investing or trading advice. Trading in the stock market and in other securities entails varying degrees of risk, and can result in loss of capital. Most investors and traders lose money. Readers seeking to engage in trading and/or investing should seek out extensive education on the topic and help of professionals.
