Pump And Dump
Pump-and-dump schemes are a form of Internet fraud that involves thinly traded stocks and stocks of shell companies that happens solely online. The pump-and-dump scheme involves fraudulent information that will cause a sudden price increase in these types of stocks and disseminated in a variety of Internet-based places such as message forums, chat rooms, internet message boards and spam email.
The "pump" part of this scheme is the dramatic rising of the stock prices through the previously listed Internet websites and forums, which can happen extremely quickly. Once the price has reached the desired price, the scammer will sell off their holdings to make a wealthy profit, before the stock returns to its original price. This latter part is known as the "dump."
The pump-and-dump scheme not only gives these scammers a hefty profit from the rise of the stocks, but it also affects others who helped it to rise and didn't realize the point when the stock suddenly declined. They don't get a chance to sell their stocks and have lost a large amount of money in the process. The pump-and-dump scheme is sometimes known as the "hype and dump manipulation" due to the increased hype and marketing of certain kinds of stock.
Short-selling schemes, called "Scalping" are another form of pump-and-dump schemes where the scammer with create fraudulent information through similar methods, but this time to decrease the value of the company's stock. When it falls, the scammer will buy the stock at the lower price and gain a profit when it returns to its higher, normal level.
The best way to prevent being caught up in this stock fraud is to be wary of anyone trading information with you about certain company's stock prices. If a random email or telemarketer talks to you about a stock, it is more than likely a scheme and should be avoided. People who claim they have inside information about a stock, is also openly promotion illegal activity which is another big red flag that is a scam.