A scheme that attempts 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 positions 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.
Investopedia Says:
Traditionally, this type of scheme was done through cold calling, 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 about how a stock is set to break out 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.
Related Links:
High-quality stock reports needn't be confused with stock manipulators' dramatic claims. The Short And Distort: Stock Manipulation In A Bear Market
These fraudsters were the first to commit fraud, participate in insider trading and manipulate stock. The Pioneers Of Financial Fraud
To protect yourself from an attack, don't swim in this ocean. Spotting Sharks Among Penny Stocks
Learn about the Wall Street scandals Eliot Spitzer prosecuted before perpetrating his own. Eliot Spitzer - Man Of A Thousand Scandals
Muriel Siebert has blazed many paths for investors, but is especially relevant the first woman to sit on the NYSE. Muriel Siebert: Female Finance Pioneer
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