what is pump and dump 
pump and dump is a manipulative scheme that attempts to boost the price of a stock or security through fake recommendations these recommendations are based on false misleading or greatly exaggerated statements the perpetrators of a pump and dump scheme already have an established position in the company s stock and will 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 burgeoning popularity of cryptocurrencies has resulted in the proliferation of pump and dump schemes within the industry 1the basics of pump and dumppump and dump schemes were traditionally conducted through cold calling the advent of the internet has shifted most of this activity online fraudsters can now blast hundreds of thousands of email messages to unsuspecting targets or post messages online enticing investors to buy a stock quickly these messages typically claim to have inside information about an imminent development that will lead to a dramatic upswing in the share s price once buyers jump in and the stock has moved up significantly the perpetrators of the pump and dump scheme sell their shares in these instances the volume of the sales of these shares is usually substantial causing the stock price to drop dramatically in the end many investors experience huge losses pump and dump schemes generally target micro and small cap stocks on over the counter exchanges that are less regulated than traditional exchanges micro cap stocks and occasionally small cap stocks are favored for this type of abusive activity because they are easier to manipulate 2 micro cap stocks generally have a small float low trading volumes and limited corporate information as a result it does not take a lot of new buyers to push a stock much higher pump and dump 2 0the same scheme can be perpetrated by anyone with access to an online trading account and the ability to convince other investors to buy a stock that is supposedly ready to take off the schemer can get the action going by buying heavily into a stock that trades on low volume which usually pumps up the price the price action induces other investors to buy heavily pumping the share price even higher at any point when the perpetrator feels the buying pressure is ready to fall off they can dump their shares for a big profit 3pump and dump in pop culturethe pump and dump scheme formed the central theme of two popular movies boiler room and the wolf of wall street both of these movies featured a warehouse full of telemarketing stockbrokers pitching penny stocks in each case the brokerage firm was a market maker and held a large volume of shares in companies with highly questionable prospects the firms leaders incentivized their brokers with high commissions and bonuses for placing the stock in as many customer accounts as possible in doing so the brokers were pumping up the price through huge volume selling once the selling volume reached critical mass with no more buyers the firm dumped its shares for a huge profit this drove the stock price down often below the original selling price resulting in big losses for the customers because they could not sell their shares in time avoiding pump and dump schemesthe securities and exchange commission sec has some tips to help avoid becoming a victim of a pump and dump scheme here are some points to keep in mind exercise extreme caution if you receive an unsolicited communication regarding an investment opportunity the plethora of avenues for virtual communication means that such dubious investment pitches can reach you in any number of ways by way of an email a comment or post on your social media page a direct message or a call or voicemail on your cellphone ignore such messages acting on them may result in significant losses rather than the massive gains promised by the scammers 3