How to Spot a Pump and Dump Scam on the Penny Stock Market

A pump and dump is a type of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell cheaply bought stock at a higher price once the inflated hype pushes the stock price down. Typically, pump and dump scams occur in penny stock markets where stocks are easily manipulated due to low liquidity and lack of publicly available information.

Pump and dump typically involves three groups of people:

-The first group are those who own a large number of shares of a particular company's stock, perhaps having acquired these shares at a very low price or even for free through various promotions.

-The second group is those who create fictional positive news about a company. The hope is that unsuspecting investors will see all this positive news and buy shares of the company's stock, driving up its price so that the members of the first group can make a big profit when they sell their shares.

-Third group victims are generally unprepared investors who see all this positive news about a company and buy shares only to see them lose most or all of their value when members of the first group sell their shares en masse, causing the price to fall. . Victims may be left holding worthless penny stocks after certain shell companies go bankrupt as part of larger pump and dump schemes.