I won’t repeat the name of the company because it is very possible the company is a victim in this classic stock manipulation maneuver updated thanks to the Internet and technology.
Here’s how a “pump and dump” scam works. The crooks buy a big chunk of stock in a company, often a penny stock where they can get a lot of shares cheap.
They may use several accomplishes so no one person attracts attention with their purchases.
The crooks then start an aggressive campaign of pumping up the stock with stories about what a great business it is and how it is about to make a big announcement. They predict the stock will make huge gains in the next few days.
You are encouraged to buy now while the price is right.
If the crooks have done a good job of pumping the stock, people will start buying it and the price will begin to rise.
As the price starts to rise, the crooks will double their efforts of pumping the stock, pointing out that the price is going up, but there is still time to make a killing.
The crooks keep pumping the stock – even to the point of issuing false press releases or analysts comments to hike the price even higher.
When they feel they have pushed the price as high as it is going to go and company officials are publicly expressing concern about the rising price of their stock, the crooks dump their shares for a fat profit.
This unloading of a large block of stock sends the price plummeting and other shareholders, seeking the price falling, sell also. The stock plunges, sometimes lower than before the crooks took an interest.
The crooks walk away with a fat profit, the shareholders who bought on their advice are burned and the company gets a black mark it probably didn’t deserve.
You can avoid a “pump and dump” scam by:
- Never buy on the recommendation of someone you don’t know
- Promises of quick gains are rarely true
- Big announcements, new products, and so on are a give away that you are being hyped
