Pump and dump schemes are a form of illegal market

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Pump and dump schemes are a form of illegal market manipulation in which fraudsters buy stocks at a low price, then do a blast of marketing to get others to buy them and thus “pump up” the stock price.

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Illegal stock promotion and manipulation is a type of securities fraud. It is sometimes called a “pump and dump” scam. This type of fraud involves an investor or group of investors promoting a stock that they hold and then selling their shares after the price goes up because of their endorsement.

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A Security Price Skyrockets
One of the easiest ways to convince unsuspecting investors to pile into a security is when its price is skyrocketing. After all, investors buy stocks and cryptocurrency to make money, and when a security is jumping in price by leaps and bounds, it’s hard not to be interested. But when a skyrocketing price coincides with a pump and dump email or message board campaign, it pays to be suspicious. Typically, this is evidence that the pump and dump scheme is actually working. As investors get sucked into the scam, demand far outstrips supply, and prices soar.

It’s important to note that there are indeed some cases in which a stock or crypto can suddenly turn on a dime and rocket higher in price based on actual, fundamental changes that support the new price. That’s why it’s important to pay attention to what is driving the price higher. If it’s based on speculation or rumors tossed about by emails or message boards, the price is just as likely to plummet back to Earth at some point. While you could certainly get lucky and ride the price higher for a while, there’s no way of knowing when the house of cards will fall, and you could easily end up getting burned in the end.

Social Media and Message Boards Light Up
Technology moves so rapidly that email scams are already becoming obsolete. Social media sites and online message boards are the “email of the future,” with a broader reach that requires even less effort by scammers to reach millions of captive readers. Message boards promoting stocks have been all the rage in 2020 and 2021, as so-called “meme stocks” or “YOLO stocks” like GameStop and AMC Entertainment have skyrocketed.

reminds us of the Snpw fluke run in January 2020.

The Information Source Is Unlicensed or Unregistered
Legitimate, registered, fiduciary financial advisors are required by law to recommend investments that are in your best interest. Unregistered, anonymous touts or “advisors” have no legal obligations to you at all. More often than not, their only interest is in putting money into their own pockets. Anytime you get unsolicited advice from someone who is not registered or licensed, take it with a huge grain of salt. Touts are essentially salespeople that get paid by convincing you to cough up money for investments that can make them money, not you.

If you find yourself getting sucked into a pitch from one of these scam artists, do yourself a favor and conduct your own outside research. It’s theoretically possible that underneath all of the hype there is an investment case for a stock or crypto that someone pitches to you. However, if it’s from an unregistered or unlicensed source, the odds that you’re being subjected to a pump and dump scheme rise dramatically.

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