The topic of this article is the answer to the following questions: what is pump and dump?How do I tell if a stock is being pumped and dumped?
Pump and dump is a type of financial fraud that is also known as “hype and dump manipulation” or “stock dump”.This type of financial fraud and manipulation essentially entails highly publicizing or touting the stock of a particular company.The company that is touted is usually a microcap company.The way that the company is publicized is by the issuing of absolutely false and also misleading statements to the public.In other words: lies are told about the value of the stock.So the stock is heavily promoted with statements about inside information, an absolutely mathematically secure and technically proven way to prove absolute stock winners, a great new stock that every body is clamoring for and if you don’t buy it now then you are going to miss out on the great new stock trend of the year, all of that kind of thing.Remember, however, that these testimonials and statements made by “accredited market analysts” are usually made by company insiders or paid promoters.So investors get all excited about something and they buy up tons and tons of stock in an effort join the trend and not miss out on a great financial opportunity.The price is shot up way out proportion to what the company is actually worth.But after all of the stock is bought at outrageously high prices, then the promoters will dump their stock.The price will then fall, and the investors will end up losing their money while the company makes off with a fortune.

Pump and dump schemes are illegal, because they are artificially inflating the price of a stock or a security.Securities law forbids this type of artificial inflation.However, particularly with the rise of the Internet and online trading, pumping and dumping has become more and more common.Companies will have fantastic press releases on their web sites.Newsletters will be sent out that seem to come from uninvolved and neutral organizations crowing about the greatness of this latest stock.People will post messages in chat rooms, and a lot of spam will be sent out telling you that you have to buy this stock now or essentially you will never recover from the inevitable financial ruin caused by missing out on this great opportunity.
The stocks that are usually manipulated in this manner are generally not large stocks that are traded on the New York Stock Exchange or NASDAQ.Instead, penny stocks are used that are traded by over-the-counter bulletin boards.There is hardly any information on these stocks, so they are much easier to manipulate.Probably the most infamous pumper and dumper was Jonathan Lebed.At the tender age of 15, Jonathan Lebed made tons and tons of money by using the Internet in order to run successful pumps and dumps.The U.S. Securities and Exchange Commission filed a suit against him in civil court, and Lebed settled by paying only a fraction of the money that he made.
In order to protect yourself against pump and dump schemes, all that you need to do is follow a few simple rules.Don’t believe any undocumented or unofficial reports of so called hot stocks.Make sure that you check up on stocks through money analysts and money charts that you trust.It might be wise for you to stay away from penny stocks altogether, actually.And make sure that you do your homework before investing.And homework doesn’t mean believing the spam that you get in your email inbox.