The Pump and Dump

The financial fraud known as “pump and dump” involves artificially inflating the price of a stock or other security through promotion, in order to sell at the inflated price. This practice is illegal under securities law, yet it is particularly common.

One example of a highly successful pump-and-dump operator is Jonathan Lebed. Lebed was 15 years old when the SEC accused him of manipulating several securities — he settled the charges by paying a fraction of his total gains. While Lebed has many apologists who note that his promotional activities are similar to those used by analysts every day, they fail to take into account that he not only made false and misleading statements about companies, but purchased enough shares to temporarily move the market, creating an artificial burst of activity that provoked investor interest. In fiction, a good example of how this works can be seen in the movie Boiler Room.

From Dillon, Read & Co. Inc. And the Aristocracy of Stock Profits

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