Pumping and dumping

Updated: March 22, 2008 - 4:52 PM

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PUMPING AND DUMPING

How a classic "pump and dump" stock scheme works:

• A promoter buys shares of an obscure company, often one that has no operations, for as little as a fraction of a penny a share.

• The promoter touts ("pumps") the stock with spam e-mails, in Internet chat rooms or using legitimate-looking newsletters, often with outlandish claims about the stock's performance. Fraudulent sales are arranged to create the appearance of demand for the stock.

• Investors buy in, and the share price rises. At prices so low, even a small increase creates a large percentage profit for the promoter.

• The promoter sells ("dumps") shares at the artificially inflated price. The promotions end, and the stock price collapses. Investors who bought at the inflated price lose their money.