Pump and Dump Scam

A pump and dump scam is a form of microcap stock fraud that involves the inflation of the price of an owned stock through misleading and false positive statements. This is done to sell the cheaply purchased stock at a higher price. Once the overvalued shares are dumped by the owners, the price will fall and the investors lose their money. Stocks involved in pump and dump scams are also referred to as chop stocks. Two of the most popular schemes used in pump and dump scams are Internet fraud and telemarketing but Internet fraud has become the leading source for pump and dump scams. Many pump and dump scams will be sent to the public over the Internet via spam email.

Pump and Dump Scheme Examples

Since the Internet has become such an easy outlet for people to advertise or market a product, pump and dump scams have grown in popularity, allowing stock promoters to trick unknowing investors into buying truly cheap stocks. The stock promoter will claim that he or she has inside information about the stock that touts the stock as hot. The promoters will then post messages in chat rooms and via spam email messages urging investors to purchase the stock quickly not knowing that once the stockholders sell their stocks the price will plummet and the investors will lose their money.

Two most notable examples include the following:

  • A 15-year-old named Jonathan Lebed purchased penny stocks and then promoted them on the message boards at a price increase. Lebed sold the stocks to other investors for a profit, leaving the investors out in the cold with a low value stock. The Securities and Exchange Commission investigated Lebed and filed a civil suit against him alleging security manipulation. Lebed settled the charges by paying a portion of his profits but never admitted nor denied performing a pump and dump scan.
  • In 2007, the Park Financial Group faced charges from the Securities and Exchange Commission because of a lengthy investigation. The investigation found that Park Financial Group used a pump and dump scam from 2002-2003 on the Pink Sheet listed stock of Spear & Jackson Inc.

Pump and dump scams are so prominent through spam email messages that they account for 15 percent of all spam emails sent via the Internet today. Investors purchasing stocks through this method can lose 5 percent of their investment within the first two days while spammers could make a return of 6 percent by using this illegal method.

Obtaining Legal Help

If you or a loved one has been taken advantage of during a pump and dump scam, contact a pump and dump scam attorney immediately for expert legal counsel regarding your case. An attorney will be able to file a lawsuit in your behalf against the scamming party or gather other people who have been scammed to file a class action lawsuit.