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 with nearly 8% of active investors participating in at least one “pump-and-dump” losing on average nearly 30%. We identify several distinct types among participating investors, some of which (i.e., day trader) should not be viewed as falling prey to the schemes. We show that investor types respond differently to market manipulation, which poses challenges in designing investor protections. We also show that portfolio composition and past trading behavior better explain tout participation than demographics. Moreover, the immediate effects of the schemes are only part of their adverse impact. We identify broader and longer lasting ramifications for participating investors beyond their direct financial losses.


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