Pump and dump

For other uses, see Pump and dump (disambiguation).

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).

In a classic pump and dump, the scammer first buys lots of cheap shares in some company of little value. They then spread false information exaggerating the potential value of the company. This causes investors and speculators to buy shares in said company from other parties, causing the price of the shares to rise. When the share price has reached a level that pleases the scammer, they sell all their shares. This causes the share price to drop. When the investors and speculators realize that they overestimated the potential of these shares, they in turn sell their shares in an attempt to cut their losses, and the price drops even faster. Because the investors sold their shares for less than what they paid for them, they lose money.

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 general misinformation campaigns.

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