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Pump and Dump

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Pump and Dump
A highly illegal practice occurring mainly on the Internet.
    
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.
    
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. A small group of informed people buy a stock before they recommend it to thousands of investors. The result is a quick hike in the price followed by an equally quick downfall. The people who have bought the stock early sell off when the price peaks. 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.
Posted by  Financial Research Associates, LLC
 
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