A 'pump and dump' scheme is a type of securities fraud where fraudsters artificially inflate the price of a stock through false or misleading information, creating a buying frenzy. This initial phase, called 'pumping,' encourages investors to buy shares at inflated prices. Once the price has risen significantly, the fraudsters 'dump' their shares by selling them off at the higher price. After this selling occurs, the stock price typically plummets, leaving other investors with substantial losses on their investments as they realize the stock's true value was overinflated due to the misleading claims.[1][2][3]
Pump and dump schemes frequently target microcap stocks, which have low market capitalizations and limited available information, making them easier to manipulate.[4][5] These schemes are often executed through various channels such as social media, email, and online advertisements, allowing fraudsters to reach a broad audience quickly.[6]
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