What is a pump and dump scheme in securities fraud?

A pump and dump scheme is an illegal form of securities fraud in California. It is a type of market manipulation that involves artificially inflating the prices of a stock - "pumping" it up - in order to sell it off quickly at a higher price - "dumping" it. The parties engaged in the scheme are typically stock promoters who spread false and misleading information in order to generate interest in the stock and drive up the price. Once the stock has reached a profitable level, the stock promoters sell their shares at a profit, leaving their “victims” with essentially worthless investments. The scheme is illegal because it involves defrauding investors through deceptive market activities. In addition, pump and dump schemes are illegal because the promoters are often withholding or “hiding” important information in order to increase the stock price and fraudulently increase their own profits. Pump and dump schemes are a serious form of securities fraud, and carry significant penalties under California law. If convicted, individuals can face jail time and hefty fines. The California Department of Financial Institutions works to crack down on these fraudulent activities and provides education and resources to help investors avoid becoming victims of pump and dump schemes.

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What is a pump and dump scheme in securities fraud?

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