There are many financial activities that violate federal securities laws. Some people engage in insider trading because they have access to non-public information. Others might develop more complex schemes intended to enrich themselves at the expense of others.
Pump-and-dump schemes often require weeks, if not months, of planning and execution. They allow people to sell questionable investment holdings at a profit. When uncovered, pump-and-dump schemes may lead to prosecution for the people involved.
What type of conduct constitutes a pump-and-dump scheme?
People create artificial hype around a business or investment
A pump-and-dump scheme involves people misleading prospective investors in order to increase the value of their current investment holdings. Frequently, this process involves using a variety of different online platforms to falsely claim that a business is profitable or about to become profitable.
When others then begin purchasing the misrepresented investment, the people engaging in the pump-and-dump scheme sell their holdings at a significant markup. The most recent investors are at risk of losing most or all of their capital. The process of generating artificial buzz and tricking others into making questionable investments can lead to securities fraud allegations.
Those convicted of participation in a pump-and-dump scheme are at risk of jail time and fines. They may become ineligible for professional licensing and may be subject to orders of restitution. In some cases, there may be options available to help avoid a conviction or reduce the severity of the sentence imposed.
Reviewing recent trading activities with a skilled legal team can help people respond appropriately when facing accusations of securities fraud. Professionals may need help understanding their situation and planning the best path forward, and that’s okay.
