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Pump and Dump Schemes
Don't fall for a con artists stock market hype
Pump and Dump schemes occur every day and are sometimes referred to as "hype and dump manipulation" which is
also a perfect name for this scam. What happens is that certain individuals will go around, often on the internet
posting on message boards or blogs, touting a company's stock. It is usually a microcap you will never have heard
of but because of these easily posted, false and misleading messages, a lot of interest is generated. Once the
price of the stock has been "pumped up" the people that created the hype quickly sell the stock and make tons of
money before the stock settles back to its fairly valued price. People that bought the stock near the end of this,
when the price is the highest, are the hardest hit and they stand to lose the most. Many of you will remember the
bubble in the late 1990's which in many ways was like one giant pump and dump scheme. Rumors about stocks where
everywhere and the public looked at them as opportunities to become wealthy overnight. It was a perfect environment
for pump and dump schemes to flourish.
The internet is not the only place you will encounter pump and dump schemes. Sometimes, telemarketers will call
you using the same methods used on the internet. There will be claims about "inside" information about a stock
or an "infallible" stock picking method that you simply can't afford to miss out on. These calls may actually
be coming from company insiders or promotors being paid to make the calls and they are the ones that will make
out like bandits after the stock price is "pumped" up by the mania they are trying to create with their misleading tips.
How to avoid Pump and Dump scams
Try to avoid buying stocks based on "tips" from insiders especially if they come in the form of a phone call or
an anonymous internet posting. It's more likely than not that the person posting either has no idea what they are
talking about or it's a deliberate attempt to drive a stock's price up for no good reason at all. Do your homework
and research the stock yourself.
Related SEC Pump and Dump Scheme Links
Pump and Dump
Microcap Stock: A Guide for Investors.
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