Investor Protection Guide: Micro-cap Stock Fraud ("Pump and Dump")

"Pump and Dump" is a type of micro-cap stock fraud involving the use of false or misleading statements to increase stock prices and then sell the inflated stocks to the public. Micro-cap stock refers to companies with low capitalizations and typically limited assets. Many microcap stocks trade on the over-the-counter market. Microcap stocks often lack reliable, publicly available information about the company and have a limited historical record. The most common "pump and dump" scheme involves artificially inflating the price of a stock through false and misleading positive statements in order to sell the cheaply purchased stock at a higher price. Promoters may claim to have "inside" information, but in reality they may be paid by companies or may stand to gain a profit when they sell their grossly overvalued stocks. Promotion methods may include unsolicited e-mails, faxes, phone calls, or voice mail messages. Once promoters "dump" their stocks, prices eventually fall and investors lose their money.

For more information, see:

• Securities and Exchange Commission (SEC): http://www.sec.gov/rss/your_money/pump_and_dump.htm The SEC describes “pump and dump” schemes and offers steps in avoiding becoming a victim.
• MSN Money: http://articles.moneycentral.msn.com/Investing/SimpleStrategies/BewareOfPumpAndDumpStocks.aspx MSN Money provides six tests to protect investors from scammers who use phony announcements or endorsements to inflate a stock’s price before bailing out.