Pump and dump is one of the manipulation schemes that some penny stocks’ investors go about to increase tiny or micro-cap stocks. Like I stated in my previous post, penny stocks are prone to manipulations. Although these manipulations are frauds those fraudsters are very intelligent in their ways they use to hurt others financially.
Why is the need for pump and dump in penny stocks
The reason is very clearly and straightforward. Usually, the individuals who get involve in pump and dump are investors just like any penny stocks trader. They buy a very large number of shares from a small company for a very low price and then the start pumping this stock.
In some other cases they are promoters, they get paid by the company or shareholders to pump their currently hold stock.
They use web chats, telephone, emails, newspapers, etc. to get their false statements passed on to other potential investors. If those potential investors fall for the hype they then go and buy shares, which causes those particular penny stocks’ prices to rise.
What would you do at this point of time if you were in this scheme? Yes, I know you would sell, this is exactly what those people do. Once the price goes up they quickly sell all their shares, also known as dump.
Now those who bought shares and hold them because they thought the price would keep going up could not sell them as the value was decreasing. The price may even plummets to the lowest value. They still think it will go back up somehow since the fraudster was so optimist through the news. But unfortunately, most of the time the value of those penny stocks never go back up until the money is totally lost.
Are there any penalties for those involving in the pump and dump schemes?
The Federal Government takes that seriously when complaint is filed against someone as such. Actually, there was a case not too long ago in Miami, Florida where someone was charged for this scheme. The problem is to be able to spot them since they usually claim that they work for the company, or they have some inside news.
The best way to ensure you don’t get preyed on by these people is to recognize them. As this website is dedicate to help you, you will be provided with a list of some pump to dump stocks every business morning. Make sure you check them out before you invest into the penny stocks market.