What is a "pump and dump" scheme?
A pump and dump is when a person buys a thinly-traded, usually low-priced stock, and then "pumps" it by spreading positive messages about the company on message boards or via a mass e-mail.   When the stock rises in response, the person quickly sells ("dumps" it) for a profit.

Sometimes it can be hard to distinguish between an acceptable debate about a stock, and a disguised pump and dump or spam message.

I would like this to be an educational discussion about how one should identify and be skeptical of a 'pump and dump' scenario.   Here are a couple of red flags, that although not proof positive, should get your guard up:

- The poster is new, or has only a few posts.
- The stock is a very low-priced stock, like $0.001, or is listed on a OTC exchange.  The abbreviations .PK, .OB or .OTCBB are attached to the ticker.
- The stock has very low volume.

Be careful out there!    If you see something which you believe to be spam, please mark it as such and it will be addressed.

Here's another tip: If you see the phrase "Forward looking statements" it almost always means you're dealing with a paid pumper (someone hired to hype the stock) - it's basically a bit of legalese that means "We made these numbers up, so you can't sue us when they're completely wrong."

P&D companies issue a LOT of press releases touting achievements which are not newsworthy.  They hire public relations firms whose sole function is to hype the stock.  If you look at their history they have been in several different completely unrelated businesses over the years.  They often have share prices that are less than one cent.  Real companies have NONE of these attributes.  Period.

If you know what you are doing you can spot a P&D in a New York second.  If you can't, take it as a sign that you need to hone your investment street smarts.

CHVC is definitely markable as a pump&dump.  It is on pink sheets, and for the past month nary a day goes by that I don't get a spam email touting its value.  It has traded mid 50cent range all the long while.  The company website is almost unreadable hyperbole about investing in China's and the USA's interconnectivity, whatever that means.  Beware.

Michael

aka SandyBeachBum

I like Sirius, and the merger with XM is looking likely.

Stay away from penny stocks!

Well you know there is money to be made with pennies, you just have to be careful and watch your stops. Just be careful no need to stay away, high risk and high potnetial gain, just don't put all your money in pennies or other high risk investments  and you will be fine. Some of us like the excitment pennies have to offer.

Sebstrocity:

Well you know there is money to be made with pennies, you just have to be careful and watch your stops. Just be careful no need to stay away, high risk and high potnetial gain, just don't put all your money in pennies or other high risk investments  and you will be fine. Some of us like the excitment pennies have to offer.

Are there any legit trading sites that focus on OTC and penny stocks?  Not really looking to invest yet, but just trying to find a legit site with articles and such

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Chad - ZEroCustomerCOnfidence
Contact me at http://notanintroductoryoffer.blogspot.com

http://www.thetechnicaltrader.net/

great site

Why?  Do your investigating first, small stocks is where the money makers are! 

What do you mean by "small stocks is where the money makers are"? 

It is about percentages not the price of the stock.  Buying penny stocks is an easy way to lose money.

Penny stocks are also an easy way to make a huge profit if you know how to do it.  Think about a $0.04 stock goes to $0.05, you just made 25%.  Can happen in minutes or not at all.  There is more to it than that, but it happens all the time, you just need to find it and know how to trade it.  DON'T TOUCH THE STOCKS THAT COME THROUGH IN EMAILS OR ON FORUMS, FIND YOUR OWN OR YOU WILL LOSE MONEY MOST OF THE TIME.  IF IT WAS A GREAT STOCK NOBODY WOULD TELL YOU TO BUY IT, THEY WOULD BUY IT.

I totally agree with you about the e-mail/forum/fax rule, usually undertaken by paid blasters or the company itself.  Further, I believe we all understand how a penny stock can make you money.  On the other hand, penny stocks are still very risky and the odds are against you.  While you could make 25%, you could also lose 25% with one downtick.  For daytraders, who watch the market minute by minute, I get it.  But for most of us, it just doesn't make sense. 

There seems to be a lot of beginners on this site, and we should not promote gambling - we should promote investing!

Still, if you have any recommendations... please share.

    Not all small cap or penny stocks are bad. If you want research on stocks traded on OTCBB or AMEx a good one is www.taglichbrothers.com.  You can read reports that actually tell you that these types of stocks are real risky and you should do more research than just their reports.  Hmmmmmm let's see I guess the pump and dump of all time was ENRON, that was a blue chip was it not?

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Recon