What are pump and dump schemes?

Question

What will be an ideal response?

Answer 1

The U.S. Securities and Exchange Commission describes pump and dump schemes, which are also called "hype and dump manipulation," as involving the touting of a company's stock through false and misleading statements to the marketplace often by using the Internet. After distributing favorable, but false, information to drive up the price of the stock (the pump), the price of the stock rallies by its being bought. The pump or hype may include urging potential investors to "buy now before it is too late," suggestions that the recommendation is based on "inside" knowledge, or that an "infallible" economic model identified the stock. The pump is often done with microcap stocks, issued by the smallest companies, over half of which have capitalizations of less than $1.25 million. Thus, "microcap" means companies that have micro capitalizations. Microcap stocks are traded in the over-the-counter (OTC) market, which has no listing standards. This is in sharp contrast to the great amount of information on companies whose stocks are traded on the major exchanges. Therefore, detailed, accurate information about the company is usually not available for victims who need such data in the face of a pump hustle.