What is a Pump and Dump Scheme?

There’s a simple maxim on the stock market: buy low, sell high. It’s the core objective of every investor. However, just because that’s the goal, doesn’t mean every means of achieving that goal is legal or ethical. One of the most common forms of stock market fraud our lawyers see is the pump and dump scheme.

The pump and dump scheme is pretty basic. It works like this: an investor or group of investors acquire an extraordinarily cheap stock. They then use a number of tactics to talk up the stock, pumping up its value. The fundamentals of the stock haven’t changed, but these investors have used certain tactics to promote the stock as the next big thing.

Once the stock reaches a certain value as a result of the publicity effort, the investors in question sell off (or “dump”) all of their shares. They make a huge profit, while those who were tricked into buying are left holding a fundamentally worthless stock.

It’s arguably the oldest trick in the securities fraud playbook, but the pump and dump scheme isn’t going away. It’s too easy for unethical investors to play the publicity game and gin up interest in a stock based on nothing of substance.

But pump and dump schemes aren’t legal, and if you’ve been victimized by one, our experienced stock market fraud lawyers can help.

If you need a stock market fraud lawyer to help you pursue justice and compensation – no matter where in the country you live – please call Colling Gilbert Wright today at 1-888-513-3010 for a free consultation.