Pump and dump is a form of securities fraud where perpetrators artificially inflate the price of a stock through false or misleading statements, then sell their shares at the inflated price. Once they sell, the price crashes, leaving other investors with significant losses.
The scheme typically targets small, thinly traded stocks that are easier to manipulate. Promoters use social media, emails, or false news to generate excitement and attract buyers. Once the price rises sufficiently, they dump their shares.
For example, a group might spread false rumors about a small company's breakthrough product, causing the stock to surge. After selling their shares at the peak, the truth emerges and the stock plummets. Pump and dump schemes are illegal and subject to severe penalties.