The 'Pump and Dump' Stock Groups
The Story
Groups or individuals buy large positions in low-priced, thinly traded penny stocks. They then use social media, newsletters, and message boards to spread false or exaggerated positive information ('the pump'). When the stock price rises due to the artificial demand, they sell their shares at a profit ('the dump'), causing the price to collapse and leaving other investors with worthless stock.
🚩 Red Flags
- Unsolicited stock tips via email or social media
- Pressure to 'buy now before it takes off'
- Stocks with no revenue or business operations
- Claims of "inside information" or "guaranteed" returns
- Influencers not disclosing they own the stock they're promoting
⚖️ The Fallout
Countless retail investors have lost savings. The SEC has brought hundreds of cases, but the low barrier to entry makes new schemes pop up constantly. GameStop and 'meme stocks' showed how social media can create similar dynamics organically.
📚 Lessons Learned
If someone has a truly hot stock tip, they wouldn't share it with strangers. Do your own research. Be especially wary of penny stocks promoted online.
Related Scams