· Pump and Dump targets small and micro-cap stocks
· Pump and dump attract heavy fines
· Pump and dump are typical in the cryptocurrency ecosystem
Pump and dump scheme is an illegal and manipulative method of boosting a security or stock’s price via positive but bogus recommendations. The scammers buy the shares cheaply, then start spreading rumors that make the stocks' price go up.
They encourage the other investors to get on board not to miss the windfall. When the stocks reach a high point, the scammers sell their shares amid the buyer rush, make their profit, and leave the rest of the investors to face the losses.
According to securities law, this practice is illegal and leads to hefty fines on the perpetrators. The rising popularity of cryptocurrencies has seen a rise in pump and dump schemes within the crypto ecosystem.