Pump and dump
Meaning
A fraudulent scheme that involves artificially inflating the price of an asset through misleading positive statements, then selling the artificially acquired stock at the higher price.
Origin
The genesis of "pump and dump" schemes lies in the unregulated frontiers of financial markets, particularly with "penny stocks" traded on bulletin boards and over the counter. Operators would acquire large quantities of cheap, often worthless, shares and then unleash a barrage of deceptive promotional materials – faxes, newsletters, cold calls – to create a buzz and inflate the stock's perceived value. Once the price surged due to this manufactured demand, they would "dump" their holdings, leaving unsuspecting investors to face the inevitable collapse of the stock's price, and losing everything. This predatory tactic became particularly prevalent with the rise of the internet, allowing scammers to reach a wider, more anonymous audience.
Examples
- The recent crypto scam was a classic pump and dump, leaving many investors with worthless digital tokens.
- Regulators are always on the lookout for brokers attempting a pump and dump to manipulate stock prices.