“Pump and Dump” is a very common type of securities fraud, which involves defrauding investors by selling them worthless stocks in the hopes of making money with false promises of appreciation in the market. These false statements are made on your behalf. They include inflated stock price predictions, claims of internal or third party financial problems and even false and optimistic statements about the economy. A person commits pump and dump if they knowingly and intentionally falsify information and make false promises to do so. There have been many instances over the years where innocent people have lost their lives because of pump and dump scams.
One of the most famous of this type of scheme was Enron. This company generated a great deal of revenue and was highly profitable Pump and Dump. The stockholders of Enron were happy as long as there was profit being made. In order for this to work, however, there had to be a significant inflow of new cash into the company, and this was not a problem. Because of a poor economy, the profits of Enron simply vanished and all of its shareholders lost much higher price than they had paid.
All over the country, other organizations were also guilty of this type of securities fraud. Even though the economy was doing well, there was no increase in the hiring of employees. Employees were staying put in the same jobs year after year and the corporations who employed them continued to employ the same poor workers who earned them no money. This scenario continued for years until something changed. The economy began to pick up and unemployment rates began to go down. The number of people looking for work increased and with it came more jobs for those who were getting a good salary and benefits.
It is no longer easy for investors to take advantage of other investors. This is because there are now strict laws in place that prevent trading companies from deceiving their investors. If an investor senses that another investor has insider information, then the investor will not trade with that particular person. This new legislation is in place because investors were being taken advantage of and it was not in the best interest of the investors to trade with each other. Today, with more investors using microcap company’s to invest, the trading volume has greatly increased and the competition amongst investors has skyrocketed.
The best way for investors to avoid being ripped off by pump and dump schemes is to become an expert on social media marketing. You must become familiar with the personalities of the people who run these scams. Look online for the information about the people who operate these scams. Then, watch for statements made by them, such as, “I will reveal inside information that will blow the lid off of this stock”. If a fraudster’s statement sounds too good to be true, then you should question what kind of business they are running.
To spot a pump and dump scheme, look at the direction the stock price is going. If it is drastically going up, then this is probably a pump and dump scheme. Usually the fraudsters will have bought large amounts of shares very cheaply and will be inflating the stock price to make a large profit. When the bubble bursts and the stock price take a huge drop, the victims of this fraud will suffer financially. This typically happens after the stock prices have been inflated beyond what the company could ever hope to achieve.
Another reason that pump and dump scams happen so frequently is that the scammers often target penny stocks. Penny stocks are inexpensive, but because of their lower value, they are easy to pump up and sell quickly. When someone is manipulating the market with penny stocks, they have no trouble leaving a massive trail of fraudulent stock trades behind them. This allows them to continue trading in the hopes of hitting another high and making a huge profit.
There are two different types of pump and dump schemes. The first is when the fraudsters make an extensive list of penny stocks that they are willing to buy up and trade over-the-counter. They then put all of the stocks on auction sites, where anyone can buy them up. The other type involves the fraudsters contacting large brokerage firms and convincing them to trade their stocks secretly for them. Because of the extreme unpopularity of penny stocks, dealing with these types of fraudsters is much easier for the fraudulent trader than dealing with legitimate brokers.