Pump and dump is one form of stock market manipulation which has been around for a long time. The internet has made it easier for people to do this.
Pump and dump consists of 2 parts as you might guess. The first is the “pump†in which someone with stocks to sell uses false statements to either sell the stock or to overinflate the value of the stock, often by making you think it’s a “hot†stock. The “dump†part comes when the stock seller then sells his/her shares, the price drops, and the buyer may be left with worthless paper.
Stocks that are sold in this way are often known as “penny stocks†because they do not trade on major stock exchanges like the NYSE, LSE, TSE, NASDAQ, etc. They may trade “over-the-counter†or OTC. In the old days, whenever that was, they were actually sold on street corners. With the advent of the telephone, “cold-calling†stock sales became possible and telemarketing of stock became possible. Yes, you guessed it, the internet has made this even easier due to the mass-mailing potential of the internet,
Companies that sell stocks and scam artists (of course) will send out emails in large numbers trying to talk up their stock. They may claim to have “insider†information that the stock is going to go sky high. (This is illegal anyway and is known as insider trading. People do, sometimes, go to prison for that). Stock traders and scam artists can talk up the stock on bulletin boards or chat rooms. As people start to buy the stock the value goes up. As long as you sell before the bubble bursts you’re okay with this but the problem is that usually you don’t know when the bubble is going to burst. In the end, the investor is left with a stock which is worth much less that what they paid for their initial shares or, even worse, a piece of worthless paper.
Recently, some of the stocks that are being promoted are located overseas, often in a country where there could be language barriers or even information barriers. China is one example. A company may have no idea that someone in another country is promoting their company’s stock and the market regulators may not have a way to control such activities.
The best rule of thumb is the old adage: if it looks to good to be true then it probably is. If you get one of those stock promoting spam mails, your best bet is always to hit “deleteâ€.
For more on pump and dump and other stock market fraud, you can look here at Wikipedia.
Pump and dump consists of 2 parts as you might guess. The first is the “pump†in which someone with stocks to sell uses false statements to either sell the stock or to overinflate the value of the stock, often by making you think it’s a “hot†stock. The “dump†part comes when the stock seller then sells his/her shares, the price drops, and the buyer may be left with worthless paper.
Stocks that are sold in this way are often known as “penny stocks†because they do not trade on major stock exchanges like the NYSE, LSE, TSE, NASDAQ, etc. They may trade “over-the-counter†or OTC. In the old days, whenever that was, they were actually sold on street corners. With the advent of the telephone, “cold-calling†stock sales became possible and telemarketing of stock became possible. Yes, you guessed it, the internet has made this even easier due to the mass-mailing potential of the internet,
Companies that sell stocks and scam artists (of course) will send out emails in large numbers trying to talk up their stock. They may claim to have “insider†information that the stock is going to go sky high. (This is illegal anyway and is known as insider trading. People do, sometimes, go to prison for that). Stock traders and scam artists can talk up the stock on bulletin boards or chat rooms. As people start to buy the stock the value goes up. As long as you sell before the bubble bursts you’re okay with this but the problem is that usually you don’t know when the bubble is going to burst. In the end, the investor is left with a stock which is worth much less that what they paid for their initial shares or, even worse, a piece of worthless paper.
Recently, some of the stocks that are being promoted are located overseas, often in a country where there could be language barriers or even information barriers. China is one example. A company may have no idea that someone in another country is promoting their company’s stock and the market regulators may not have a way to control such activities.
The best rule of thumb is the old adage: if it looks to good to be true then it probably is. If you get one of those stock promoting spam mails, your best bet is always to hit “deleteâ€.
For more on pump and dump and other stock market fraud, you can look here at Wikipedia.
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