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The "pump and dump" investment scam


White collar crimes can take many different forms. New Jersey residents who are wondering whether an activity falls into this category need to understand how it is defined. One investment scam that frequently arises is referred to as a "pump and dump". This occurs when a person or group of people who are investing in a particular stock promote it enthusiastically. They then sell it when the price of the stock has increased because of their promotion of it.

Often, this kind of stock is presented as something that is going to be big in the future. The idea is that once it gets out into the public sphere as to how exciting this stock is, its value will increase substantially. The one constant for a pump and dump is that the supply and demand will be strategically shifted. This form of fraud is usually only successful with smaller or micro-cap stocks that are tradedover the counter.

Shares that are traded in this way are often illiquid and their prices will fluctuate based on volume. The demand and volume of trades increases as the stock becomes more well-known and those overseeing the fraud will benefit when the price increases as they sell the stock after a short time. Investors need to be aware that a legitimate stock without a viable product increasing rapidly through word of mouth might be a fraudulent scheme.

Those who are involved in a scheme of this kind might face serious consequences. It may have been an unwitting act without understanding that their participation is a securities law violation. Those who are charged with such a white collar crime may want to speak with an attorney as quickly as possible in order to construct a defense strategy to use before or at trial.

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