Editing Pump and dump (section)

==Scenarios==
Pump-and-dump schemes do take place on the Internet using an [[email spam]] campaign, through media channels via a fake press release, or through [[telemarketing]] from "[[Boiler room (business)|boiler room]]" brokerage houses (such as that dramatized in the 2000 film ''[[Boiler Room (film)|Boiler Room]]'').<ref>{{cite web|author1=NBC News staff  |author2=news wires  |name-list-style=amp |url=https://www.nbcnews.com/business/400-million-buyout-hoax-fooled-many-1C7208011 |title=The $400 million buyout hoax that fooled many - Business on |publisher=NBC News |date=2012-10-24 |access-date=2012-12-18}}</ref> Often the [[stock promoter]] will claim to have "inside" information about impending news. Newsletters would purport to offer unbiased recommendations, then [[tout]] a company as a "hot" stock, for their own benefit. Promoters also post messages in online chat groups or internet forums, urging readers to buy the stock quickly.<ref name="sec"/>

If a promoter's campaign to "pump" a stock is successful, it will entice unwitting investors to purchase shares of the target company. The increased [[demand]], price, and [[trading volume]] of the stock could convince more people to believe the hype and to buy shares as well. When the promoters behind the scheme sell (dump) their shares and stop promoting the stock, the price plummets, and other investors are left holding a stock that is worth significantly less than what they paid for it.

Fraudsters frequently use this ploy with small, thinly traded companies—known as "[[penny stock]]s", generally traded [[over-the-counter (finance)|over-the-counter]] (in the United States, this would mean markets such as the [[OTC Bulletin Board]] or the [[Pink Sheets LLC|Pink Sheets]]), rather than markets such as the [[New York Stock Exchange]] (NYSE) or [[NASDAQ]]—because it is easier to manipulate a stock when there is little or no independent information available about the company.<ref>{{cite web |url=https://www.sec.gov/investor/pubs/pump.htm |title=Pump&Dump.con: Tips for Avoiding Stock Scams on the Internet |publisher=U.S. Securities and Exchange Commission |date=January 11, 2005}}</ref> The same principle applies in the United Kingdom, where target companies are typically small companies on the [[Alternative Investment Market|AIM]] or [[PLUS Markets Group|OFEX]].

A more modern spin on the attack is known as hack, pump and dump.<ref name=WP>{{cite news|last=Nakashima|first=Ellen|title=Hack, Pump and Dump|url=https://www.washingtonpost.com/wp-dyn/content/article/2007/01/25/AR2007012501763.html|newspaper=The Washington Post|date=2007-01-26}}</ref> In this form, a person purchases penny stocks and then uses compromised brokerage accounts to purchase large quantities of that stock. The net result is a price increase, often pushed further by day traders seeing a quick advance in a stock. The original stockholder then cashes out at a premium.<ref name=HWS>{{cite book|last=Krinklebine|first=Karlos|title=Hacking Wall Street: Attacks and Countermeasures|year=2009|publisher=Darkwave Press|location=US|isbn=978-1-4414-6363-0|pages=[https://archive.org/details/hackingwallstree0000krin/page/83 83–180]|url=https://archive.org/details/hackingwallstree0000krin/page/83}}</ref> Pump-and-dump schemes also permeate the crypto-market, targeting especially low-market-cap, [[wikt:illiquid|illiquid]] coins on [[cryptocurrency exchange]]s.<ref>{{Cite book|last1=Morgia|first1=M. La|last2=Mei|first2=A.|last3=Sassi|first3=F.|last4=Stefa|first4=J.|title=2020 29th International Conference on Computer Communications and Networks (ICCCN) |chapter=Pump and Dumps in the Bitcoin Era: Real Time Detection of Cryptocurrency Market Manipulations |date=August 2020|chapter-url=https://ieeexplore.ieee.org/document/9209660|pages=1–9|doi=10.1109/ICCCN49398.2020.9209660|arxiv=2005.06610|isbn=978-1-7281-6607-0|s2cid=218628772}}</ref><ref name=":0" />

===Examples===

====Stratton Oakmont====
In the early 1990s, the penny-stock brokerage [[Stratton Oakmont]] artificially inflated the price of owned stock through false and misleading positive statements in order to sell the cheaply purchased stock at a higher price.<ref>{{cite journal |last=Mulligan |first=Thomas S. |title=Investor Wins $10 Million in Penny-Stock Broker Case |url=https://www.latimes.com/archives/la-xpm-1997-04-17-fi-49501-story.html |journal=Los Angeles Times |date =April 17, 1997|access-date= 11 January 2015 }}</ref> Firm co-founder [[Jordan Belfort]] was criminally convicted for applying the scheme. He later turned his story into a memoir, [[The Wolf of Wall Street (book)|''The Wolf of Wall Street'']], which was later adapted into an [[Academy Awards|Academy Award]]–nominated [[The Wolf of Wall Street (2013 film)|film of the same name]].

====Jonathan Lebed====
During the [[dot-com bubble]], when the stock-market fever was at its height and many people spent significant amounts of time on stock Internet message boards, a 15-year-old named [[Jonathan Lebed]] allegedly used the Internet to run a successful pump and dump. Lebed bought penny stocks and then promoted them on message boards, pointing at the price increase. Allegedly, when other investors bought the stock, Lebed sold his for a profit, leaving the other investors [[Bagholder|holding the bag]]. He came to the attention of the [[U.S. Securities and Exchange Commission]] (SEC), which filed a [[civil suit]] against him alleging [[Market manipulation|security manipulation]]. Lebed settled the charges by paying a fraction of his total gains. He neither admitted nor denied wrongdoing, but promised not to manipulate securities in the future.<ref>{{Cite news |url=https://www.nytimes.com/2001/02/25/magazine/25STOCK-TRADER.html?pagewanted=all |title=Jonathan Lebed: Stock Manipulator, S.E.C. Nemesis – and 15 |last=Lewis |first=Michael |date=February 25, 2001 |newspaper=The New York Times}}</ref>

====Enron====
As late as April 2001, before [[Enron scandal|Enron collapsed]], executives at the company participated in an elaborate pump and dump scheme.<ref name="DVD132">{{cite video|title=[[Enron: The Smartest Guys in the Room]]|medium=DVD|publisher=[[Magnolia Pictures]]|time=32:58|date=January 17, 2006}}</ref> Studies of the anonymous messages posted on the [[Yahoo]] board dedicated to Enron revealed predictive messages that it was akin to a [[house of cards]], had "fooled even the most sophisticated analysts", and that investors should bail out while the stock was good.<ref name="BMB-NYT">{{Cite news |author=Morgenson, Gretchen |author-link=Gretchen Morgenson |url=https://www.nytimes.com/2002/04/28/business/yourmoney/28WATC.html?pagewanted=1 |title=The Bears on This Message Board Had Enron Pegged |work=The New York Times |date=2002-04-28 |access-date=2010-04-25}}</ref> After Enron falsely reported profits, which inflated the stock price, they covered the real numbers by using questionable accounting practices. Twenty-nine Enron executives sold overvalued stock for more than a billion dollars before the company went bankrupt.<ref name="Publici">{{cite web|first=Dan |last=Chambers |url=http://publici.ucimc.org/mar2002/32002_7.htm |title=Enron the Symptom, Not the Disease |publisher=publici.ucimc.org |access-date=2010-04-25 |archive-url=https://web.archive.org/web/20060622102124/http://publici.ucimc.org/mar2002/32002_7.htm |archive-date=2006-06-22}}</ref>

====Park Financial Group and International Media Solutions, LLC====
Park Financial Group, [[Spear & Jackson]], and International Media Solutions, LLC were involved in a pump-and-dump scheme where the price per share increased by $14.00 and over 100,000 shares were traded each day, netting Spear & Jackson around $3 million in profits. In 2005, Spear & Jackson and International Media Solutions were fined over $8 million, including its two executive officers, Kermit J. Silva and Yolanda Velazquez, each paying an additional $420,000 out of their personal accounts. On December 5, 2007, Park and the company's president were ordered to pay over $113,000 in fines and penalties.<ref>{{cite web|url=https://www.sec.gov/litigation/admin/2007/34-55614-o.pdf|date=April 11, 2007|title=Administrative Proceedings: Park Financial Group, Inc. and Gordon C. Cantley|work=[[U.S. Securities and Exchange Commission]]|access-date=June 12, 2019}}</ref><ref>{{cite web|url=https://www.sec.gov/litigation/admin/2007/34-56902.pdf|date=December 5, 2007|title=Administrative Proceeding: Park Financial Group, Inc. and Gordon C. Cantley|work=[[U.S. Securities and Exchange Commission]]|access-date=June 12, 2019}}</ref>

====Langbar International====
Started as Crown Corporation, [[Langbar International]] was the biggest pump-and-dump fraud on the [[Alternative Investment Market]], part of the [[London Stock Exchange]]. The company was at one point valued greater than $1 billion, based on supposed bank deposits in Brazil which did not exist. None of the chief conspirators were convicted, although their whereabouts are known. A [[Wiktionary:patsy#Noun|patsy]] who made a negligent false statement about the assets was convicted and banned from being a director.<ref>{{cite web|url=https://www.theguardian.com/business/2011/jun/24/langbar-international-fraud-history|title=Langbar International: the greatest stock market heist of all?|first=Simon|last=Bowers|website=[[The Guardian]]|date=24 June 2011}}</ref> The investors who lost as much as £100 million sued one of the fraudsters and recovered £30 million.<ref>{{cite web|url=http://www.theel1tetrader.com/2015/02/langbar-international-verified-aim-fraud.html|title=Langbar International - Verified AIM Fraud|last=El1te}}</ref>

====Morrie Tobin====
In April 2018, [[Morrie Tobin]] and others, using [[Offshore bank|offshore accounts]], gained over $165 million from a pump-and-dump scheme.<ref>{{cite web|url=https://www.sec.gov/litigation/litreleases/2018/lr24361.htm|date=November 28, 2018|title=SEC Charges Four in Fraudulent Microcap Manipulation Scheme Orchestrated Through International Accounts|work=[[U.S. Securities and Exchange Commission]]|access-date=June 12, 2019}}</ref> When questioned by federal agents, Tobin told the agents that he was involved in another scheme implicating a soccer coach from [[Yale University]],<ref>{{Cite news|url=https://www.latimes.com/local/lanow/la-me-morrie-tobin-college-admissions-scandal-20190331-story.html|title=The bizarre story of the L.A. dad who exposed the college admissions scandal|first1=Joel |last1=Rubin |first2=Matthew |last2=Ormseth |first3=Suhauna |last3=Hussain |first4=Richard |last4=Winton|date=March 31, 2019 |work=[[Los Angeles Times]] |access-date=June 12, 2019}}</ref> which in turn led to the [[2019 college admissions bribery scandal]]. In February 2019, Tobin pled guilty to [[Conspiracy (criminal)|conspiracy]] and [[securities fraud]]. On June 7, 2019, a federal judge hit Tobin with a $4 million [[Asset forfeiture|forfeiture]].<ref>{{cite web|url=https://www.stockwatch.com/News/Item.aspx?bid=Z-U:*SEC-2771186&symbol=*SEC&region=U|last=Caswell |first=Mike |date=June 7, 2019|title=SEC defendant Tobin ordered to forfeit $4M (U.S.)|work=Stock Watch|access-date=June 12, 2019}}</ref>

====Cryptocurrency====
[[File:Visualisation of pump and dump scam based on SLO-BNB 40-minutes action.png|thumb|229x229px|Visualisation of pump and dump scam based on SLO-BNB cryptocurrency example<ref>{{Cite web |title=SLO/WBNB real-time on-chain dex data |url=https://coinmarketcap.com/dexscan/bsc/0xd44ae30d4a267acba4494307f1adb612cb9cf19f/ |access-date=2023-02-24 |website=coinmarketcap.com}}</ref>]]
Being an unregulated market, and due to the concentration of a large amount of [[cryptocurrency]] in a small number of hands, the prices of many cryptocurrencies are sensitive to pump-and-dump schemes.<ref>{{cite web|title=Level of cryptocurrency scams 'unprecedented in modern markets'|date=13 August 2020 |url=https://uk.finance.yahoo.com/news/cryptocurrency-pump-and-dump-scams-university-of-technology-sydney-stockholm-school-economics-riga-paper-230143711.html|access-date=2021-02-07|publisher=Yahoo! Finance|language=en-GB}}</ref><ref>{{Cite news|date=2021-02-02|title=Crypto Pump And Dumps Aim Small Amid Speculative Trading Frenzy|language=en|work=Bloomberg.com|url=https://www.bloomberg.com/news/articles/2021-02-02/crypto-pump-dumps-aim-small-amid-speculative-trading-frenzy|access-date=2021-02-07}}</ref> There are organised pump-and-dump schemes run through social media platforms including [[Telegram (software)|Telegram]] and [[Discord (software)|Discord]].<ref>{{cite web|last=Martineau|first=Paris|title=Inside the group chats where people pump and dump cryptocurrency|url=https://theoutline.com/post/3074/inside-the-group-chats-where-people-pump-and-dump-cryptocurrency|access-date=2021-02-07|website=The Outline|language=en}}</ref>

====Spam====
Pump-and-dump stock [[scams]] are prevalent in [[Email spam|spam]], accounting for about 15% of spam e-mail messages. A survey of 75,000 unsolicited emails sent between January 2004 and July 2005 concluded that spammers could make an average return of 4.29% by using this method, while recipients who act on the spam message typically lose close to 5.5% of their investment within two days.<ref>{{cite journal|author=Frieder, Laura and [[Jonathan Zittrain|Zittrain, Jonathan]]|title=Spam Works: Evidence from Stock Touts and Corresponding Market Activity|date=March 14, 2007|publisher=Berkman Center Research Publication No. 2006-11|ssrn=920553}}</ref><ref>{{Cite news |url=http://news.bbc.co.uk/1/hi/technology/5284618.stm |title=Spammers manipulate stock markets |date=25 August 2006 |work=BBC News}}</ref> A study by Böhme and Holz<ref>{{cite journal |last1=Böhme |first1=Rainer |last2=Holz |first2=Thorsten |title=The Effect of Stock Spam on Financial Markets |journal=SSRN Electronic Journal |date=April 2006 |volume=April 2006 |doi=10.2139/ssrn.897431 |s2cid=12236853 |url=https://www.researchgate.net/publication/228199058 |access-date=27 September 2018}}</ref> shows a similar effect. Stocks targeted by spam are almost always penny stocks, selling for less than $5 per share, not traded on major exchanges, thinly traded, and difficult or impossible to [[Short (finance)|sell short]]. Spammers acquire stock before sending the messages and sell the day the message is sent.<ref>{{cite web |last1=Hanke |first1=Michael |last2=Hauser |first2=Florian |title=On the Effects of Stock Spam E-mails∗ |url=http://www.ebs.de/fileadmin/redakteur/funkt.dept.finance/DGF/downloads/Paper/No-262.pdf |website=EBS Universitat |access-date=27 September 2018 |archive-url=https://web.archive.org/web/20160305083412/https://www.ebs.edu/fileadmin/redakteur/funkt.dept.finance/DGF/downloads/Paper/No-262.pdf|archive-date=2016-03-05}}</ref>

===Comparison with other types of schemes===

A pump-and-dump scam is a type of [[economic bubble]], with the main difference between this scheme and most other types of bubbles being that the pump-and-dump bubble is deliberately perpetrated by unlawful activity. A pump-and-dump scheme is similar in many ways to a [[Ponzi scheme]] (in that both types of scam use misrepresentations in an effort to enrich the promoters and/or initial investors with money from later investors), however, there are a number of differences between the schemes:
* Ponzi-type investments are privately traded, often between individuals who are known to one another, whereas pump-and-dump schemes are typically marketed to the general public and traded on public stock exchanges and the victims and perpetrators are not acquainted with each other.
* Ponzi schemes typically promise very specific returns on investments and/or include falsified records implying consistent and steady returns, whereas pump-and-dump schemes only come with general and/or implied promises of substantial profits.
* Ponzi schemes typically come with the expectation of profit over a relatively extended period and typically last for months, years or even decades before their inevitable collapse. By comparison, pump-and-dump scams are designed to make profits extremely quickly and are executed over weeks, days or even hours.
* Ponzi schemes are occasionally the result of investment vehicles that are originally intended to be legitimate but ultimately fail to perform as expected. By comparison, pump-and-dump schemes are invariably intended to be scams from their conception, although a fairly common tactic used by pump-and-dump schemers is to take over a once-legitimate business (one that is either failing or defunct), or even just its name, in order to pump and dump its stock.
* For all of the above reasons, Ponzi schemes tend to leave a far more extensive trail of [[evidence (law)|evidence]]. They are typically much easier to prosecute after they are discovered, and often result in much stiffer criminal penalties.

Pump-and-dump scams differ from many other forms of spam (such as [[advance fee fraud]] emails and [[lottery scam]] messages) in that it does not require the recipient to contact the spammer to collect supposed "winnings", or to transfer money from supposed bank accounts. This makes tracking the source of pump-and-dump spam difficult, and has also given rise to "minimalist" spam consisting of a small untraceable image file containing a picture of a stock symbol.{{Citation needed|date=July 2007}}