Pump-and-Dump Scheme

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Definition of 'Pump-and-Dump Scheme'

A pump-and-dump scheme is a fraudulent investment operation that involves artificially inflating the price of a stock through false and misleading positive statements. The perpetrators of this scheme then sell their shares at the inflated price, leaving other investors holding worthless stock.

Pump-and-dump schemes often target small, thinly traded stocks that are not well-known to the general public. The promoters of these schemes will use a variety of methods to artificially inflate the price of the stock, such as:

* Making false and misleading statements about the company's financial prospects.
* Distributing promotional materials that contain exaggerated or fabricated information about the company.
* Creating fake online personas to promote the stock on social media and message boards.

Once the price of the stock has been inflated, the promoters will sell their shares at the inflated price, leaving other investors holding worthless stock. The victims of these schemes often lose all of their investment, and some may even be forced to declare bankruptcy.

Pump-and-dump schemes are illegal under federal securities laws. The Securities and Exchange Commission (SEC) has the authority to investigate and prosecute pump-and-dump schemes, and it has successfully brought a number of cases against perpetrators of these schemes.

If you are considering investing in a stock, it is important to do your own research and to be aware of the potential for pump-and-dump schemes. You should also be wary of any investment that is promoted through false or misleading statements. If you suspect that you are the victim of a pump-and-dump scheme, you should contact the SEC or your state securities regulator.

Here are some additional tips to help you avoid pump-and-dump schemes:

* Do not invest in a stock based on the advice of someone you do not know.
* Do not invest in a stock that is promoted through false or misleading statements.
* Do your own research on the company before investing.
* Be aware of the risks involved in investing in small, thinly traded stocks.

If you have any questions about investing, you should consult with a qualified financial advisor.

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