Pump and dump
This is an accepted version of this page Pump and dump (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements (pump), in order to sell the cheaply purchased stock at a higher price (dump).
Once the operators of the scheme "dump" (sell) their overvalued shares, the price falls and investors lose their money.
[2] While fraudsters in the past relied on cold calls, the Internet now offers a cheaper and easier way of reaching large numbers of potential investors through spam email, investment research websites, social media, and misinformation.
Promoters also post messages in online chat groups or internet forums, urging readers to buy the stock quickly.
[2] If a promoter's campaign to "pump" a stock is successful, it will entice unwitting investors to purchase shares of the target company.
[12] After Enron falsely reported profits, which inflated the stock price, they covered the real numbers by using questionable accounting practices.
In 2005, Spear & Jackson and International Media Solutions were fined over $8 million, including its two executive officers, Kermit J. Silva and Yolanda Velazquez, each paying an additional $420,000 out of their personal accounts.
[14][15] Started as Crown Corporation, Langbar International was the biggest pump-and-dump fraud on the Alternative Investment Market, part of the London Stock Exchange.
A survey of 75,000 unsolicited emails sent between January 2004 and July 2005 concluded that spammers could make an average return of 4.29% by using this method, while recipients who act on the spam message typically lose close to 5.5% of their investment within two days.
A pump-and-dump scheme is similar in many ways to a Ponzi scheme (in that both types of scam use misrepresentations in an effort to enrich the promoters and/or initial investors with money from later investors), however, there are a number of differences between the schemes: Pump-and-dump scams differ from many other forms of spam (such as advance fee fraud emails and lottery scam messages) in that it does not require the recipient to contact the spammer to collect supposed "winnings", or to transfer money from supposed bank accounts.
[29][30] By recommending the stock (often, but not always, by providing inflated price targets or more generic promises of substantial returns), the promoter convinces others to purchase the stock, providing a temporary rise in share price and volume which allows the "scalper" to then sell his shares on unsuspecting investors and obtain a profit.
Scalping scams are frequently effectuated through social media (e.g., Twitter), and may lead to both criminal and civil liability in the United States.
[33] Given the rise of social media, scalping scams have become a significant focus of regulators in the United States in recent years.
These regulations proved effective in either shuttering or greatly restricting brokers/dealers, such as Blinder, Robinson & Company, which specialized in the penny stocks sector.
[41] However, sanctions under these specific regulations lack an effective means to address pump-and-dump schemes perpetrated by unregistered groups and individuals.
The 2000 film Boiler Room stars Giovanni Ribisi as Seth Davis, a young man who gets a job as a trainee at a small brokerage firm called J.T.
