A scheme attempting to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements. The perpetrators of this scheme, who already have an established position in the company's stock, sell their position after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.
The victims of this scheme will often lose a considerable amount of their investment as the stock often falls back down after the process is complete.
Traditionally, this type of scheme was done through the cold-calling of individuals but with the advent of the internet this illegal practice has become even more prevalent. Pump and dump schemes usually target micro- and small-cap stocks, as they are the easiest to manipulate. Due to the small float of these types of stocks it does not take a lot of new buyers to push a stock higher.
Claims being made about how a stock is set to break out based on the next greatest thing or generate returns of hundreds or thousands of percent, should be met with a considerable amount of caution. It is important to always do your own research in a stock before making an investment.
I am sure you can find plenty of stories of online scams. check out "Scam Dogs and Mo-Mo Mamas" by John R. Emshwiller also - kind of old now (copyright 2000) but you can see how some of them work as far as getting you hooked if you don't have your own rules in place. Some of the "characters" are still active on the web today. So easy to call many stocks a scam with a little research. Doesn't mean you can't make money though. Often a perfectly legit stock will be pumped and dumped also for the reason noted above.
-------------------- All post are my opinion. Do your own DD. Who's clicking your buy/sell button!? Posts: 7800 | From: Virginia | Registered: May 2006
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What's illegal about saying you think something will do well? In many different ways. Posting positive info about a stock enticing people to buy. Making something look like a sure thing. Some call those that believe it "drinking the kool-aid". It's up to the individual to do the research right? Google the CEO and CFO. Sometimes all it takes is to enter the company name in the "exact phrase" and law suit or "violation" and you may be surprised to find the company you're researching or its individuals have previous run ins with the sec or other issues.
-------------------- All post are my opinion. Do your own DD. Who's clicking your buy/sell button!? Posts: 7800 | From: Virginia | Registered: May 2006
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yea pumping/dumping doesn't happen on this board... no one here out of regular traders tries to pump a stock in order to dump it while you are buying it...
-------------------- Let the world change you... And you can change the world.
Ernesto "Che" Guevara de la Serna Posts: 4669 | Registered: Mar 2004
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Another word of advice. Avoid all the ads you see pumping the latest "hot stock pick" or "you must get on board now". I've never seen one of these come in yet. These are boiler room hucksters pumping the stock at, or near, the top of a cycle. That's their job. That's what they do. They also make money shorting the sale AFTER you jump on board and they ride the wave down with YOUR money. This should be obvious to anyone with half an eye open or those that have been trading for any length of time. Yet I'm amazed at how many people still fall for this ploy.
Posts: 669 | From: Gouldsboro, Pa. | Registered: May 2006
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