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Simple English definitions for legal terms

Investor Protection Guide: Micro-cap Stock Fraud ("Pump and Dump")

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A quick definition of Investor Protection Guide: Micro-cap Stock Fraud ("Pump and Dump"):

"Pump and Dump" is a type of stock fraud where people lie about a company to make its stock price go up. They then sell their own stock to make money, leaving other people who bought the stock with nothing. This happens a lot with small companies that don't have a lot of money or information available to the public. The people who do this often use the internet to trick people into buying the stock. Investors should be careful and do their own research before buying any stock. If something sounds too good to be true, it probably is. If you think someone is trying to trick you, you can report it to the Securities and Exchange Commission (SEC)."

A more thorough explanation:

Definition: "Pump and Dump" is a type of stock fraud where people use false or misleading information to increase stock prices and then sell the stocks to the public. This type of fraud is common with microcap stocks, which are stocks of small companies with limited assets. Microcap stocks are easy to manipulate because they lack reliable public information and have a limited history. They often trade on over-the-counter (OTC) markets, which have lax financial standards and lack transparency in trading.

Example: A group of stock promoters buy a large amount of stock in a microcap company. They then spread false information about the company, such as claiming that the company has received FDA approval for a new drug. They send unsolicited emails and post messages on bulletin boards and chat rooms to promote the stock. People start buying the stock, and the price goes up. The promoters continue to promote the stock while selling their own shares, causing the price to eventually fall. The people who bought the stock lose their money.

Explanation: The example illustrates how "pump and dump" works. The promoters use false information to create demand for the stock, causing the price to go up. They then sell their own shares, causing the price to eventually fall. The people who bought the stock based on false information lose their money.

Warning Signs: Investors should watch for the following warning signs of “pump and dump”:

  • Promotion of a microcap company as the next hot stock
  • "Inside" information about a company provided through unsolicited means
  • A surge in trading of a microcap company without material public news
  • Huge return predictions such as “10k could return 25k in 30 days”
  • Promotion of stocks on the OTC markets

Advice: Investors should be cautious when taking advice from people they do not know. If an investment opportunity sounds too good to be true, it probably is. Investors should perform due diligence before purchasing any stock by conducting their own research or consulting their investment advisors. Suspicious fraud activities may be reported to the SEC.

Sources:

Investor Protection Guide: Investment Seminars ("Free Lunch") | Investor Protection Guide: Misleading Senior Designations

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snow
20:31
I agree with dk ^
madollyy
20:31
Got it, thank you. I don't think there is much I can do for my GPA now since I only have 1 semester left for ug but I definitely will be studying my butt off for the LSAT.
Dkk
20:32
Nice!
madollyy
20:32
I really appreciate your advice, guys <3 Wishing you luck on your endeavors!
JumpySubsequentDolphin
20:32
@madollyy: is that your CAS GPA?
madollyy
20:33
That's what's on my transcript! I haven't done that one yet tbh. I get mostly A's, some B's. Got dragged down a bit too much from one D in my first semester though ><
JumpySubsequentDolphin
20:34
do you have any A+’s? that could help your gpa!
JumpySubsequentDolphin
20:36
bc LSAC recalculates A+ to 4.3
madollyy
20:39
Noo :( Unfortunately. I'm surprised that I don't, there were definitely some classes that I remember scoring 98-100% but it doesn't show on my transcript
madollyy
20:41
Acutally
madollyy
20:41
My university does not list A+
JumpySubsequentDolphin
20:42
yeah my university’s the same way, so frustrating! still a great GPA and with a killer LSAT score you’ll be good to go :)
JumpySubsequentDolphin
20:42
if you have the means, I’ve heard private tutoring is the way to go
madollyy
20:44
Fingers crossed! I mean I'd be so so glad to go to law school period, but I am a bit of an overachiever. Dream is Berkeley rn, but I'm of course happy to go anywhere that lines up with my plans. And is kind enough with scholarships lol
madollyy
20:44
I'll have to see if my parents are willing to support that. I'm living on my own but ik if it'd help me they'd be willing to help
JumpySubsequentDolphin
20:47
who knows, you might not even need a tutor! Take a diagnostic and see where you stand :)
Dkk
21:03
@madollyy: yeah that happend to me too with my community college transcript. You can try calling to see if they can alter your transcript but like mine would not do it.
Dkk
21:04
Ask @babycat to tutor you @madollyy
cat food is expensive tho
21:09
I HOPW THAT ISNT REAL
@JumpySubsequentDolphin: I would push back on this. I think for the vast majority of people LSAT tutoring is unnecessary.
21:09
oh its from nov 12 phew
21:09
i was about to have a heart attack
21:09
at the berk decision lmao
@madollyy: I focus on bringing your GPA up as much as possible in the last semester because once you graduate you cannot change that. So don't study for the LSAT next semester if you think that would impair your ability to get straight A's. As for LSAT studying, I would recommend LSAT Demon (ik controversial), the Loophole, and Reading Comp Hero.
*I would focus
JumpySubsequentDolphin
21:11
@texaslawhopefully: oh I’m not sure hahaha im just basing off of my friend who got a tutor bc she was rly struggling and it seemed like it helped her!
Yeah, that's fair! For some people it can help a lot. I'm just saying in general I don't think it is necessary unless you are trying to finetune a very specific area (or get to the high 170s because that is another thing in and of itself) OR are just terrible at the test. I tutor the test and I find that most people can improve just as much through self-study.
JumpySubsequentDolphin
21:13
that makes sense for sure
JumpySubsequentDolphin
21:13
i think for her it was a lack of discipline more than anything else tbh. she could not get herself to meaningfully study on her own
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