What is a pump and dump scheme?

Key Takeaways 1 Pump-and-dump is an illegal scheme to boost a stock's or security's price based on false, misleading, or greatly exaggerated statements. 2 Pump-and-dump schemes usually target micro- and small-cap stocks. 3 People found guilty of running pump-and-dump schemes are subject to heavy fines. More items...

Are cryptocurrencies suited for pump-and-dump schemes?

Unfortunately, cryptocurrencies are particularly well-suited for pump-and-dump schemes because of the lack of regulation in the cryptocurrency market, its opaqueness, and the technical complexity of cryptocurrencies. A study conducted in 2018 examined the prevalence of pump-and-dump schemes in the cryptocurrency market.

Which stocks are most vulnerable to pump-and-dump scams?

Typically, small cap stocks and newer, smaller altcoins are especially vulnerable to pump-and-dump scams, though any stock or crypto could fall victim to a scheme. Want to put investing on autopilot? With SoFi Invest®, you don’t have to follow the market to master it.

What happens when a company dumps its shares?

Once the selling volume reached critical mass with no more buyers, the firm dumped its shares for a huge profit. This drove the stock price down, often below the original selling price, resulting in big losses for the customers because they could not sell their shares in time.