Pump and dump

A pump and dump is a scheme in which shares are accumulated cheaply, promoted with misleading claims to drive the price up, and then sold into the demand the promotion created, leaving later buyers with the loss.

Also called ramp and dump, promote and dump. Observed in equities, crypto, options. One of the information-based manipulation techniques. 121 enforcement actions in the library.
Updated 2026-09-07

How does a pump and dump work?

A pump and dump is a distribution problem solved with a marketing campaign. The operator starts with a large block of stock in a company nobody wants, and finishes having converted it into cash paid by people who wanted it briefly and intensely. Everything in between exists to manufacture that brief, intense demand.

There are four phases, and they always occur in this order.

1. Accumulation. The operator acquires a large position cheaply. Sometimes by buying in the open market over weeks, sometimes by taking shares directly from the issuer under an exemption from registration, sometimes by acquiring control of a shell company and issuing shares to themselves. The position is usually large relative to the free float — that is the point.

2. Promotion. A campaign begins: emailed newsletters, paid articles, social media posts, messaging-app groups, cold calls, or all of them at once. The content is optimistic and specific — an imminent contract, a breakthrough product, a coming uplisting — and it is difficult to check, because the company files little and the claims live in press releases rather than in audited disclosure.

3. Distribution. As buying arrives, the operator sells. This is the phase the whole exercise exists for, and it is the phase that is hardest to conceal, because it leaves records in brokerage accounts and, above certain thresholds, in public filings. Selling typically begins before the promotion ends, so that the campaign is still supporting the price while the operator is exiting.

4. Collapse. Promotion stops. There is no residual demand, because none of it was ever about the company. The price returns to roughly where it began, and usually below, because the float is now larger and held by people with no reason to hold it.

The essential asymmetry: the operator knows which phase the scheme is in, and everyone else does not. Every buyer during promotion believes they are early.

A worked example with real numbers

A shell company trades at $0.42 with a 12 million share float and average daily volume of 20,000 shares. An operator acquires 6 million shares at an average of $0.38, partly in the market and partly directly from the issuer.

The arithmetic:

Proceeds      6,000,000 × $1.55  =  $9,300,000
Cost          6,000,000 × $0.38  =  $2,280,000
Promotion cost                   =    $250,000
Net gain                         =  $6,770,000

Two features of these numbers matter more than their size.

First, the average distribution price of $1.55 is well below the $2.41 peak. Operators do not sell at the top, because selling is what stops the rise. The realistic model is selling into strength throughout the second half of the campaign — which is exactly what account records show in charged cases.

Second, the promotion budget is small relative to the gain. A quarter of a million dollars is a lot to spend on advertising a company with no revenue, and it is trivial relative to $6.8 million. That ratio is why the scheme persists, and following the promotion money is one of the most reliable investigative routes into it.

Why is a pump and dump illegal?

A pump and dump is illegal several times over, and enforcement actions usually charge more than one theory because each covers different conduct.

Fraud in the offer or sale. Securities Act § 17(a) prohibits untrue statements of material fact and schemes to defraud in the offer or sale of securities. Exchange Act § 10(b) and Rule 10b-5 prohibit the same conduct in connection with any purchase or sale. Misleading promotional claims about a company’s prospects fall squarely inside both. Importantly, half-truths count: saying something literally true while omitting what would make it not misleading is actionable.

Undisclosed paid promotion. Securities Act § 17(b) — the anti-touting provision — makes it unlawful to publicise a security for compensation without fully disclosing who paid and how much. This is a strict provision: it is violated by non-disclosure alone, without any need to prove the promotional claims were false. Many promotion cases are charged under § 17(b) precisely because it avoids litigating the truth of the marketing.

Manipulation. Exchange Act § 9(a)(2) prohibits transactions creating actual or apparent active trading, or raising or depressing the price, for the purpose of inducing others to buy or sell. Where the scheme includes supporting trades — wash trades, matched orders, or buying to establish an upward chart — this is the provision that reaches them.

Unregistered distribution. Securities Act § 5 requires that a distribution of securities be registered or exempt. Selling six million shares into a promoted market is a distribution, and the exemption relied on to obtain them almost never covers reselling them this way. Section 5 is a strict liability provision: no deception need be proved at all.

Criminal exposure. 18 U.S.C. § 1348 and the wire and mail fraud statutes carry the criminal side, and conspiracy charges are common because these schemes almost always involve several people playing distinct roles.

The crypto position is narrower and depends on characterisation. Where a token is a security, all of the above applies unchanged. Where it is not, the SEC’s antifraud provisions do not reach it, and enforcement depends on the CFTC’s fraud authority over commodity markets, on state law, or on the general wire fraud statute — which has been used successfully and does not require the asset to be a security at all.

Which real enforcement actions have alleged pump and dump?

This library holds 121 enforcement actions tagged pump and dump. The table shows the largest by civil penalty together with the most recently filed. Every row links to a page carrying the regulator's own release and, where one was published, the complaint.

All 121pump and dumpactions →

How does a pump and dump get detected?

Detection joins three records that are individually unremarkable.

The trading record. Transfer agent and brokerage data showing who accumulated, when, and at what price — and then who sold, when, and into whose buying. The tell is the alignment: buying that stops precisely when promotion starts, and selling that starts precisely when it peaks.

The promotion record. Who published, what they said, and who paid them. Promotional disclaimers, however small, are a starting point, because they usually name a payer even when they obscure the amount. Payment records — often through several intermediaries — connect the promoter to the shareholder.

The corporate record. How the shares were issued, under what exemption, to whom, and whether beneficial ownership was ever disclosed. Consultant share issuances, convertible note conversions and attorney opinion letters removing transfer restrictions are all recurring features.

Alongside this sits market surveillance for the price and volume pattern itself, which is what usually triggers the initial look: a small-float security up several hundred per cent on volume many multiples of normal, with no filing to explain it. The SEC’s trading suspension power under § 12(k) is often the first public step, freezing trading while the questions are asked.

• Concentrated accumulation in a small-float issuer preceding a promotional campaign by weeks or months.
• Promotional material appearing across multiple channels simultaneously, with common language and a common paymaster.
• Selling by the accumulating accounts that begins within days of the promotion peaking.
• Share issuance under an exemption followed by rapid resale into the promoted market.
• Transfer agent records showing a control block held through nominees that never appears in beneficial ownership filings.

What penalties does pump and dump actually attract?

The numbers below are computed from this site's own case records at build time, not quoted from a secondary source. They change whenever a new action is added to the library.

What are the red flags?

• Unsolicited enthusiasm about a company you have never heard of, in any channel.
• Disclaimers in small print stating the publisher was compensated, especially where the amount or the payer is vague.
• Price and volume rising sharply with no corresponding filing, contract or product announcement.
• A company with a recently changed name, business or ticker symbol.
• Claims of imminent transformative deals that are described in press releases but never in filings.

The single most useful habit is to check the filings rather than the story. A transformative contract that exists will appear in a Form 8-K; one that exists only in press releases and promotional emails is being described to you rather than disclosed to the market. The gap between what a company announces and what it files is where these schemes live.

The second is to ask who benefits from you knowing. Genuinely undervalued small companies are not advertised to strangers, because the person who found the opportunity has no reason to share it before buying.

What a pump and dump is not

It is not enthusiasm. People are allowed to be wrong, publicly and loudly, about companies they own. Being an optimistic investor is not fraud, and disclosed advocacy is not manipulation.

It is not all paid promotion. Paid promotion with full disclosure of the payer and the amount complies with § 17(b). It may still be worthless as analysis, but it is lawful.

It is not every stock that rises and falls. Small companies are volatile because they are small. A chart shaped like a pump and dump is a reason to look at the accumulation and promotion records, not a conclusion on its own.

Frequently asked questions about pump and dump

What techniques are related to pump and dump?

• Paid stock promotion — Paid stock promotion is publicising a security in exchange for compensation, which is lawful only if the fact of payment, the payer and the amount are fully disclosed under Securities Act Section 17(b).
• Short and distort — Short and distort is taking a short position and then publishing false or materially misleading negative claims about the issuer, in order to drive the price down and cover cheaply.
• Chat group pumps — A chat group pump is a coordinated buying campaign organised inside a messaging group, where organisers accumulate before announcing a target and sell into the buying their announcement produces.
• Social media ramps — A social media ramp is a coordinated posting campaign designed to drive attention and buying into a thinly traded security, so that the organisers can sell into the demand their posts created.
• Boiler rooms — A boiler room is a high-pressure sales operation that sells securities to investors using scripted misrepresentations, converting a block of stock the operator holds into cash one call at a time.
• Wash trading — Wash trading is buying and selling the same asset with no change in beneficial ownership and no market risk, so that a trade prints publicly and creates a false impression of activity or price.

Terms defined on this page

Pump And Dump Term · Float · Penny Stock · Touting · Section 17b · Shell Company

Sources

1. Securities Act § 17 — fraudulent interstate transactions — Cornell Legal Information Institute
2. SEC Investor Alert — microcap fraud — Investor.gov, US Securities and Exchange Commission
3. SEC Rule 10b-5 — Electronic Code of Federal Regulations
4. Rule 15c2-11 — publication of quotations — Electronic Code of Federal Regulations

Reviewed September 7, 2026. Every statute link points at the primary text. If something here is wrong, tell us — corrections are logged in public.