The Securities and Exchange Commission has historically devoted substantial enforcement resources to investigating and prosecuting stock manipulations, commonly known as “pump-and-dump” schemes. In my role as an SEC defense lawyer, and as a former SEC prosecutor, I have been involved in many stock manipulation investigations.
A pump and dump scheme involves the promotion or “touting” of a company’s stock, usually a microcap or penny stock, through false and misleading statements to the investing public. Typically, the promoters of the stock utilize social media, including Facebook, as well as newsletters, stock bulletin boards and chat rooms to “pump” the stock. As part of the pitch, the promoters – or those they subcontract to promote – will claim to have inside information about imminent corporate news, or infallible financial analysis as to why the stock will soon spike in price. In truth, however, the pitch is usually without basis and is designed solely to generate trading volume and buying pressure to move the stock price up. Once the stock has significantly risen in value, the insiders, typically through nominees, will “dump” or sell their shares into the market, thereby killing the share price. At the end of a successful pump and dump scheme, the insiders will reap substantial profits by selling their millions of shares at an artificially high price, and will leave unwitting retail investors holding worthless shares.
While pump and dump schemes are prevalent and certainly justify the SEC’s attention, not all spikes in a stock’s price and subsequent fall can fairly be labeled a stock manipulation. Similarly, not all stock promotions are fraudulent. If you are under investigation for stock manipulation, it is critical that you are represented by a SEC defense lawyer who is experienced in defending alleged stock manipulations and pump and dump schemes, and who will zealously defend your rights in the SEC investigatory process.
If you are under SEC investigation for stock manipulation, contact David Chase, Esq., a seasoned SEC defense lawyer, for a confidential, no-cost initial consultation.