Pump And Dump

AAA

DEFINITION of 'Pump And Dump'

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 EXPLAINS 'Pump And Dump'

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.

VIDEO

Loading the player...
RELATED TERMS
  1. Fictitious Trade

    1) A trade that is booked with an execution date far in the future, ...
  2. Stock Basher

    An individual, either acting alone or on behalf of someone else, ...
  3. Collusion

    A non-competitive agreement between rivals that attempts to disrupt ...
  4. Jitney

    A situation in which one broker who has direct access to a ...
  5. Short And Distort

    An illegal practice employed by unethical internet investors ...
  6. Daisy Chain

    A group of unscrupulous investors who, practicing a kind of fictitious ...
RELATED FAQS
  1. How does a pump and dump scam work?

    A pump and dump scam is the illegal act of an investor or group of investors promoting a stock they hold and selling once ... Read Full Answer >>
  2. What are the SEC regulations regarding stock splits?

    SEC Rule 10b-17 is the main regulation dealing with stock splits. Rule 10b-17 is an anti-fraud regulation of federal securities ... Read Full Answer >>
  3. What was Nathan Rothschild's interest in funding the Napoleonic Wars?

    By funding the Napoleonic Wars, Nathan Rothschild and the Rothschild family were able to manipulate forces and institutions ... Read Full Answer >>
  4. What strategies are used in a redemption mechanism?

    Redemption mechanism strategies are deployed by market makers to ensure the price of an exchange-traded fund, or ETF, does ... Read Full Answer >>
  5. What are the regulations surrounding limit order protection?

    A limit order is a common alternative to a market order that is used in technical trading and basic investing strategies ... Read Full Answer >>
  6. What are some CEO characteristics/behaviors that could lead to a drop in stock prices?

    Characteristics or behaviours exhibited by a CEO that could lead to a drop in stock prices include impropriety, the appearance ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Copper King: An Empire Built On Manipulation

    Find out how Yasuo Hamanaka's actions in the copper market forever changed the rules for commodity traders.
  2. Investing Basics

    The Pioneers Of Financial Fraud

    These fraudsters were the first to commit fraud, participate in insider trading and manipulate stocks.
  3. Investing Basics

    Use Caution Trading Pink Sheet Stocks

    Pink Sheets stocks offer exciting opportunities to increase portfolio returns by large magnitudes in a short time. However, these opportunities come with significant risks. Investors need to ...
  4. Personal Finance

    How To Identify A Micro-Cap Scam

    Discover how to distinguish a real investment opportunity from a fraudulent one.
  5. Personal Finance

    4 Dishonest Broker Tactics And How To Avoid Them

    Protecting yourself from unscrupulous practices means knowing how to spot them.
  6. Markets

    Financial Statement Manipulation An Ever-Present Problem For Investors

    The SEC has taken steps to eliminate this type of corporate fraud, but it remains a real risk for investors.
  7. Active Trading Fundamentals

    The Short And Distort: Stock Manipulation In A Bear Market

    High-quality stock reports needn't be confused with stock manipulators' dramatic claims.
  8. Investing

    A Case Study: Earnings Manipulation And The Role Of The Media

    Here we explore why the media focuses on certain earnings manipulation cases in post-Enron Wall Street.
  9. Investing

    Wizards Of Odd: A Trip To Tech Land

    I spent a couple of days in Silicon Valley, and here are some key lessons I learned after meeting with a number of tech CEOs and venture capitalist.
  10. Economics

    America's Most Notorious Corporate Criminals

    Learn about the crimes and punishments of some of the most infamous convicted white-collar crooks.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center