Avoiding Pump-and-Dump Scams
Pump-and-dump stock scams are nothing new. These scams have been a mainstay of financial fraudsters for centuries. And while technology has changed the way they operate, the underlying principles and motivations of these unlawful practices remain the same.
In a pump-and-dump scheme, fraudsters will first accumulate a large position in a stock. Generally, they'll restrict themselves to low-priced securities, often known as "penny stocks" or "microcap stocks."
These smaller stocks may trade either over-the-counter (OTC) or on an exchange. Those that trade in the OTC market aren't required to meet the listing standards imposed by exchanges; however, even listing standards don't guarantee that low-priced stocks trading on exchanges are safe investments.
Source Fool.com
