Pump and Dump Scams
A "pump and dump" scam is a fraudulent scheme where criminals artificially inflate ("pump") the price of a cheap, often obscure stock through false or misleading promotion, then sell ("dump") their own shares at the peak, causing the price to collapse and leaving other investors with significant losses.
Main Points: How the Scam Works
Initial Accumulation: Scammers quietly buy a large number of shares in an extremely cheap stock, avoiding attention.
The "Pump" Phase: They launch a aggressive promotional campaign using:
Spam emails with stock recommendations and promises of huge, quick returns.
False stories about the company's future profitability.
Fabricated press releases or analyst commentaries to create fake credibility.
Price Inflation: As persuaded victims buy the stock, the price rises. Scammers use this rise to validate their predictions and attract more buyers.
The "Dump" Phase: Once the price hits a desired peak, the scammers sell all their shares for a large profit.
The Collapse: The massive sell-off causes the stock price to plummet. Remaining shareholders panic and sell, incurring losses. The company's reputation can also be unfairly damaged.
Main Points: How to Avoid the Scams
Verify the Source: Be extremely cautious of unsolicited stock tips, especially from unknown or uncredentialed individuals.
Beware of "Too Good to Be True" Promises: Be skeptical of promises for guaranteed, quick, and enormous profits.
Investigate Sudden Hype: Treat sudden promotional campaigns around a little-known stock—especially those tied to new product announcements or big news—as a major red flag.
Do Your Own Research (DYOR): Rely on credible sources and fundamental analysis, not promotional material, before making any investment.
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