By Parthajit Kayal and Malvika Saraf
Pump-and-dump scheme is a form of scam that encourages amateur investors to buy shares in a company to increase the price of the shares artificially. It can be used to boost the price of a stock through recommendations based on false or misleading information. Pump-and-dump traders use social media platforms or messaging apps to start rumours, spread misinformation, or hype to fan interest in the stock to increase its price. Once the price of the stock rises, the fraudsters sell the stock at high prices.
What is pump-and-dump
Pump-and-dump is a type of activity that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. There are two parts to this method.
Pump: Fraudsters organise a well-planned campaign to inflate the market price. This campaign is generally carried through social media and online forums to disseminate false information about a listed stocks’ future prospects.
Dump: Once the price goes up, the perpetrators sell their shares. New investors then lose their money if the prices drop dramatically after the traders sell their shares.
Different ways used to manipulate investors
There are many ways this pump-and -dump method is used. First, by manipulation of information regarding a company and its…