Pump and Dump

A pump and dump is a form of securities fraud in which perpetrators spread false or misleading information to create a buying frenzy that artificially inflates ("pumps") a stock's price, then sell ("dump") their own shares at the elevated price. Once the promoters stop hyping the stock and offload their holdings, the price typically collapses, leaving later buyers with losses. Microcap and low-priced stocks are especially vulnerable because limited public information about these companies makes it easier to spread false narratives, and thin trading allows prices to be moved more easily.

The scheme has migrated heavily onto social media, including Reddit, where false or exaggerated claims can spread through subreddits, chat rooms, and coordinated posting. The SEC warns that social media can convey false impressions of consensus or legitimacy, making it appear that many people are buying an asset when they are not, and that such platforms are used for market manipulation, crypto scams, and community-based investment fraud. On Reddit, accusations of pump-and-dump activity frequently arise around penny stocks, thinly traded tickers, and crypto tokens promoted by accounts that may hold undisclosed positions, making the term central to debates over the legitimacy of online investing communities.