Avoiding Pump-and-Dump Scams
While it might be difficult to distinguish a pump-and-dump from enthusiastic, legitimate investment advice, here are ways to protect yourself.
Overview
Pump-and-dump stock scams are nothing new. These scams have been a mainstay of financial fraudsters for decades. And while technology has changed the way they operate, their basic framework and the end goal behind these unlawful practices remain the same.
Pump-and-dump schemes often involve three core elements: the setup (where fraudsters choose their target stock), the pump (where they engage in various tactics to increase the share price), and the dump (where they rapidly sell their stock and cash out).
Details
FINRA has historically observed fraudsters targeting low-priced, microcap stocks trading on over-the-counter (OTC) markets. There might be little publicly available information about these stocks, which can make them prime targets for fraudulent and manipulative schemes. Over the past several years, FINRA has increasingly observed fraudsters targeting low-priced stocks--including those that aren't considered microcap stocks--listed on national exchanges.
Source
Originally published at www.fool.com.