Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation

Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation

Christian Leuz, Steffen Meyer, Maximilian Muhn, Eugene Soltes, Andreas Hackethal

Series number :

Serial Number: 

Date posted :

April 15 2019

Last revised :

July 05 2021
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  • Market manipulation • 
  • Pump-and-dump schemes • 
  • securities regulation • 
  • fraud • 
  • investor protection • 
  • Lottery stocks • 
  • household finance • 
  • Penny Stocks

Price distortions created by so-called “pump-and-dump” schemes are well known, but relatively little is known about the investors in these frauds.

By examining 470 “pump-and-dump” schemes using a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, the losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 8% of active investors participating in at least one “pump-and-dump” and an average loss of nearly 30%. Moreover, we identify several distinct types of investors, some of which should not be viewed as falling prey to these frauds. We show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. We also document broader and longer-lasting ramifications of these schemes for participating investors beyond the immediate financial losses. Our analysis offers insights into the challenges associated with designing effective investor protections against market manipulation


Real name:
Andreas Hackethal
Real name:
Steffen Meyer
Real name:
Maximilian Muhn
Real name:
Eugene Soltes