Pump & dumps are stock hypes, often illegal, but
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Posted On: 08/22/2012 11:44:01 PM
Pump & dumps are stock hypes, often illegal, but always ruthless and usually within the penny or microcap market. The schemes are performed to artificially raise the trading volume and often the price of a stock ("pumping") through a campaign of hype which may include misinformation and/or misrepresentation. This enables insiders or other large shareholders to sell their stock ("dumping"). Dupes purchase the stock and unwittingly create a façade of legitimacy. This can entice even more people to believe the hype and buy even more shares. Once the schemers have sold their shares, the pumping ends, and the share price plummets .
There is only one reason that penny stock insiders spend money to promote their stock. It is so that they can sell their own stock. Often, dupes will buy into the story that, "We're just trying to increase shareholder value". Well we challenge anybody to find a penny stock that has been the subject of a promotion and has been able to maintain its increased share price for more than just a few days. The share price of a promoted stock will obey the law of gravity 100% of the time. There is only one way to permanently increase shareholder value and that is through hard work and legitimate results.
There is this perception that the purpose of a stock promotion is to increase the share price. On the contrary, the purpose of a stock promotion is to increase trading volume. An increase in share price is purely a bonus to the insiders selling. In order for the pump and dump to be successful, bids must come into the market. While bidding up the stock is preferable, the insiders are more concerned about getting buyers to take their stock at any price. As they will never relinquish control, the insiders are always free to issue themselves new stock whether in lieu of payment for services rendered, by exercising stock options or warrants, or employee bonus programs. Therefore, the price that the insiders get for their stock is of secondary importance.
There is only one reason that penny stock insiders spend money to promote their stock. It is so that they can sell their own stock. Often, dupes will buy into the story that, "We're just trying to increase shareholder value". Well we challenge anybody to find a penny stock that has been the subject of a promotion and has been able to maintain its increased share price for more than just a few days. The share price of a promoted stock will obey the law of gravity 100% of the time. There is only one way to permanently increase shareholder value and that is through hard work and legitimate results.
There is this perception that the purpose of a stock promotion is to increase the share price. On the contrary, the purpose of a stock promotion is to increase trading volume. An increase in share price is purely a bonus to the insiders selling. In order for the pump and dump to be successful, bids must come into the market. While bidding up the stock is preferable, the insiders are more concerned about getting buyers to take their stock at any price. As they will never relinquish control, the insiders are always free to issue themselves new stock whether in lieu of payment for services rendered, by exercising stock options or warrants, or employee bonus programs. Therefore, the price that the insiders get for their stock is of secondary importance.
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