PUMP & DUMP

SCHEME

1) Introduction.

2) How is it Done ?

3) Example.

INDEX

• In “Pump and dump” scheme, promoters or brokers or any individual try to boost the price of a stock with false or misleading statements about the company. Once the stock price has been pumped up, it will attract potential investors to purchase the shares of the target company. They now dump/sell to make a huge profit. At the same time investors lose money with the fall of the price.

INTRODUCTION

• Such schemes involve telemarketing and Internet fraud. Stocks targeted by spam are almost always penny stocks, Spammers acquire stock before sending the messages, and sell the day the message is sent. According to Böhme and Holz’s survey, 75,000 unsolicited emails sent between January 2004 and July 2005

concluded that spammers could make an average return of 4.29% by using this method, while recipients who act on the spam message typically lose close to 5.5% of their investment within two days.

Follow us on..

www.facebook.com/finnovationZ

www.youtube.com/finnovationZ

https://twitter.com/finnovationz555

1) Broker/promoter/any individual/marketers buy large amounts of a particular unnoticed stock (preferably penny stock).

2) They artificially inflate the price of an owned stock through false and misleading

HOW IS IT DONE ?

positive statements, fake mails and information etc. in order to sell the cheaply purchased stock at a higher price. 

3) They do the same till the price goes high.

4) Once the price takes off then operators of the scheme dump/sell their overvalued shares, the price falls and investors lose their money.

• Ketan Parekh scam, Harshad Mehta Scam, Jordan Belfort scam etc. Recently, On 10 june 2015, Surana Solar shares jumped 18% after it was reported that ‘Rakesh Jhunjhunwala’ purchased 250,000 odd shares and then it crashed to its lower circuit next day, as the true identity of the investor was revealed. As soon as the news was made public, there was frenzy amongst the punters to grab the stock. This sent the stock price surging to an all-time high of Rs. 63.

EXAMPLE

• At this stage, the operator dumped his holding of the stock, leading to abnormally high volumes on the exchanges. Later, when news leaked that the “Rakesh Jhunjhunwala” who had bought the stock in the first place is not the ace investor ‘Rakesh Jhunjhunwala’ but a namesake, the stock price plunged to a low of Rs. 32.

• It looked like this was planned, as on 8 June 2015 too, the namesake investor had bought 250,000 shares, but squared off on the same day. This did not seem to get any attention, but when the long position was taken on 9 June, that was when the other investors caught on.

• The result is that punters who dived into the stock in the belief that the ‘Rakesh Jhunjhunwala’ had bought the stock are facing huge losses. Retail investors often fall for stock tips or like to take cues from iconic investors like Rakesh Jhunjhunwala. While tracking ace investors may have its own share of risk, acting on information without checking its authenticity can be even worse.

• Later on SEBI came to rescue, as BSE issued a circular dated 12th June 2015 directing its members not to effect any payout to their clients (both funds and securities) for the trading done in Surana Solar on June 10, 2015 and June 11, 2015.CNBC’s Varinder Bansal broke the news that the “Rakesh Jhunjhunwala” who bought the stock is not the ace investor but a namesake based in Kolkata.

• Varinder Bansal speculated in his report that the entire episode appears to be a carefully orchestrated ‘pump and dump’ scheme. In the recent days, considerable number of ‘pump and dump’ activities in the stock market has come under the scanner of market regulator SEBI. SEBI is trying to figure out the best possible ways to reduce the ‘pump and dump’ schemes from the stock market.

• Watch the Wolf Of Wall Street if you to get better idea of this scam. Those who did not watch “Wolf Of Wall Street” here’s the summary: Leonardo DiCaprio plays the role of Jordan Belfort, who was the former stockbroker. In 1999, he pleaded guilty to fraud and related crimes in connection with stock market manipulation and running a boiler room as part of a

penny-stock scam. Belfort spent 22 months in prison because of his fraud scheme. The basic method of his firm is a pump and dump scam Jordan has the art of the ‘hard sell’, and he illegally makes $22 million in three hours upon securing the IPO of Steve Madden, & execute pump and dump scam successfully. Later on FBI investigates the whole episode and arrests Jordan.

Follow us on..

www.facebook.com/finnovationZ

www.youtube.com/finnovationZ

https://twitter.com/finnovationz555

Learn more about stock market investing..

Visit out website :-www.finnovationz.com

Call/whatsapp us :-

09049641491

THANKS FOR WATCHING..

FinnovationZ.com