- Pump-and-dump is a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements.
- The favored medium of communication for traders involved in pump-and-dump are social media platforms or anonymized messaging apps like Telegram and Discord.
- Promoters of the scheme will then begin to coordinate rumors, misinformation, or hype in order to artificially increase interest in the security, driving up its price.
- Then, once the price of the stock has been increased sufficiently by unsuspecting marks, the promoters then sell the stock at high prices.
The Basics of a Pump-and-Dump
Pump-and-dump schemes were traditionally done through cold calling. But with the advent of the internet, this illegal practice has become even more prevalent. Fraudsters post messages online enticing investors to buy a stock quickly, with claims to have inside information that a development will lead to an upswing in the share's price. Once buyers jump in, the perpetrators sell their shares, causing the price to drop dramatically. New investors then lose their money.