Pump and dump schemes are very prevalent and you see a lot of them in the area of penny stocks especially. If you’re looking for warning signs that you may be looking at a pump and dump stock scheme – read below to get a better idea if it is or not.
1) A group of operators finds a small company that has a really low market cap.
2) They get their hands on a big number of company shares.
3) They start to trade those shares with each other, making it look like that stock is actually in high demand. It looks like these are then the cheap stocks to buy now – a real bargain.
4) They spread fake but positive news about this particular stock.
5) Investors start getting emails, WhatsApp messages, and even SMSs all saying this stock is about to rocket up.
6) Once the initial surge happens, the stock price becomes seriously overvalued.
7) Once the group sees their target price reached, they begin ‘dumping’ their shares.
8) In a number of circumstances, they might even fudge the accounts of the company to indicate a financial turnaround is looming.
9) The company might even join in by releasing positive-sounding announcements of new products or large orders or the like.
10) The usual triggers are things like huge orders, merger talks, or takeovers.