Stocks Involved in Stock Pump and Dump Scams

As I mentioned in a previous article, stock pump and dump scams is used by unscrupulous people to make a lot of money in the stock market. It is an old trick often perpetrated by stock syndicates who prey on unsuspecting newcomers in the stock market.

I also wrote another article, on how to spot a stock pump and dump scam.

Today we will go deeper and discuss the types of stocks usually involved in the stock pump and dump scams.

7 Stocks Involved In Stock Pump And Dump Scams

1) Penny Stocks

Penny stocks are the number one favourite stock of the stock pumper. I am sure you know why.

They are cheap and have a large following which are the retailer investors.

On top of that, the potential gains on penny stocks could be massive – running into hundreds of percent if they correctly bought into these penny stocks before they run up in prices.

2) A Former High Flyer

A former high flyer is a stock that has fallen from grace. It is usually a penny stock.

The same stock pumper or another group buy into the stock and used it as their vehicle for the stock pump and dump scams.

Why a former high flyer? People always remember them, because of the great excitement they bring to the market.

In every market rally the former high flyer stock will go up when some rumour surface.

3) A Failed New Issue (IPO)

A new issue that failed to attract investor interest is another type of stock a stock pumper buy as their vehicle for a stock pump.

They usually buy the failed new issue stock because they can collect the shares cheaply from the investors who are motivated to sell their shares because they don’t want their money stuck.

Once the stock pumper collected enough, they will spread rumours and push up the share price.

4) A Flat-Lining Stock

A flat-lining stock is essentially a stock with flat or little price movement for the past 6 to 12 months.

I am sure you have seen many of them in the local market; stock with flat movement for a long time then suddenly one day Boom!

Of course exception to the rule will be those stocks with material corporate developments that cause the stock price to suddenly shoot up.

5) A No Institutional Following Stock

A no institutional following stock is a stock that has no institutional owning the stock.

A stock pumper usually collect a no institutional following stock because he does not want outside interference from the institutional investor.

He knows from experience that too many cooks (players) in the same kitchen (the stock) may just spoil the broth.

6) Low Liquidity Stock

A low liquidity stock is a stock where large tranches of stock are tied up in the hands of controlling interests, management, family interests or other connections who are willing sellers.

The stock pumper could easily buy up the stocks from one or a few of them to start the stock pump and dump scams later.

7) A Stock In An Exciting Industry

In this case, a stock in an exciting industry or a stock just entering an exciting industry.

In Malaysia, the most exciting industry currently is the oil & gas industry. The oil & gas industry is an industry that has the capacity to generate excitement among investors.

The stock pumper knows this and he will focus his efforts on these stocks.

In the past there has been a number of variations: dotcom, gold mining, biotech, construction projects, the list is endless. Basically anything that will make a good storyline.

Conclusion

The whole reason behind stock pump and dump scams is for the stock pumpers to profit. Always be vigilant when receiving free market tips from anonymous sources. It could be a stock pump and dump scams at work. Remember the saying ” If it is too good to be true, it probably is”.