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Pump and dump

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—Famous last words of every Wall Street cheerleader in history[1]

"Pump and dump" is a form of financial fraud revolving around the artificial inflation and deflation of stock, and considered insider trading, among other things (like "theft," "financial dickery," etc.)

Implementation[edit]

This scheme is implemented in two parts. The first is the "pump." Investors start a publicly traded company or buy stock in one, usually an obscure penny stock which has little independent information available about it. The investors then implement an astroturf campaign to hype the stock. In the past, this was usually done through newsletters or telemarketing offering tips on "hot" stocks and investments. Now it is more commonly done through spam and chain e-mails and internet comment boards. Pumping can also be instigated or increased through cooking the books to make a business look more profitable than it really is. i.e. accounting fraud.

Next comes the "dump." Once the stock is artificially inflated, the insiders stop hyping it and sell off their stock. This leaves them with nice fat profits while the dupes who bought the stock are left with something worth substantially less than what they paid for.

Enron and federal bailout[edit]

Enron is often cited as one of the biggest pump and dump schemes in history.[2] Large-scale financial bubbles tend to resemble a cross between a Ponzi scheme and a pump and dump scheme. Financial "journalists" (often useful idiots at CNBC), deluded stock traders, and get-rich-quick schemers (related to but not the same as Alan Greenspan) work as Wall Street cheerleaders to "pump" up a market.[3] Then, when things turn sour, the crap is "dumped" on the taxpayer via bank bailouts and printing money to finance no-interest credit from the Fed. Capitalism at work!

Short and distort[edit]

A similar but inverted version of this scheme is called the "short and distort." This involves short selling stock in a company and then "distorting," i.e. spreading rumors that the company is facing imminent collapse or is tied in with some other failing enterprise. JP Morgan Chase, for example, was the victim of a massive short and distort campaign that played up the financial ties it had to Enron through a dummy corporation as it collapsed.

See also[edit]

Further reading[edit]

  • Not a Penny More, Not a Penny LessWikipedia's W.svg, a fictional account of a pump and dump scheme where the perpetrator miscalculates. (The author, former Conservative minister Jeffrey Howard Archer, Baron Archer of Weston-super-Mare, certainly understands fraud and deceit, as he's even spent time in prison for various irregularities.)

References[edit]