Pump And Dump

How a scam works

The frenzied growth of investing via the Internet has spawned a more virulent kind of stock manipulation where, in a matter of minutes someone can drive up a stock price, reap the profits and run. The SEC's recent complaint against Douglas Colt highlights an old scam called pump and dump.

1 Finding a stock

The perpetrator searches for a vulnerable stock that is thinly traded, little known and cheap. Among Colt's picks was American Education Corp., trading at around $1 a share.

2 Buying cheap

On March 5, 1999, Colt started buying the stock at 10:47 a.m. and continued until 2:19...

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