Pump and dump crimes are a type of white collar crime that involve stocks and securities. In a pump and dump scheme, a group of individuals may begin releasing glowing reviews of a company, usually referring to its growth or new innovations. The company then begins getting a reputation as the newest “hot” stock on the market. Sometimes, these reports are false statements or fraudulent reviews.
Next, unsuspecting persons invest their money in the “highly-touted” securities, which drives up or “pumps” up the price of the stock. In some cases, the creators of the scheme may secretly issue stock to themselves. After the price is sufficiently high, the scammers will “dump” (i.e., sell) the stocks without warning. This causes the price of the stock to dive with the investors losing their interests. Due to the misrepresentation and fraudulent actions involved in pump and dump schemes, these schemes are illegal and may result in strict legal penalties.
What Types of Persons Are Targeted as Victims of Such Crimes?
Pump and dump schemes often target certain victims who are typically willing to invest their money into the sham stocks. These include such persons as:
- Elderly persons, such as persons in retirement homes, with dementia, or with declining mental capacities
- Persons with significant amounts of retirement funds
- Persons who are on disability or are living off of pensions plans
- Persons who have a mortgage, or who have taken out a second or third mortgage
Thus, victims often lose a significant portion of their retirement funds, pension benefits, and loan amounts through pump and dump schemes. These victims often have an honest, good faith belief in the securities they are investing in. This is why it is important for people to work with professional financial advisers or with a lawyer when it comes to making and maintaining investments.
What Are the Legal Penalties for Pump and Dump Crimes?
Pump and dump crimes can result in various legal and criminal penalties, including:
- Misdemeanor or felony charges, depending on the extent of the scheme and the amount of money involved
- Jail or prison time
- Loss of business licensing/sanctions by governing bodies like the SEC
How Can I Avoid Pump and Dump Situations?
You can help avoid being a victim of pump and dump fraud by working with an experienced securities professional, and a lawyer if needed. You should try to verify claims on your own as much as possible and research any “opportunities you may be presented with." Internet securities fraud can sometimes play a role in a pump and dump scheme. Lastly, it helps to research the background of a new company before investing in it.
Do I Need a Lawyer for Help with Pump and Dump Schemes?
Pump and dump schemes can sometimes take many years to unfold, and some schemes have even gone on for many years before they were discovered. You may wish to hire a criminal lawyer if you believe that you or a loved one has been affected by a pump and dump scheme. An attorney can provide you with legal advice, information, and guidance when it comes to stock regulations. Also, if you need to attend a court hearing, your lawyer can provide you with representation during the process.