Pump and dump schemes have two parts. In the first, promoters try to boost the price of a stock with false or misleading statements about the company. Once the stock price has been pumped up, fraudsters move on to the second part, where they seek to profit by selling their own holdings of the stock, dumping shares into the market.

These schemes often occur on the internet where it is common to see messages urging readers to buy a stock quickly. Often, the promoters will claim to have inside information about a development that will be positive for the stock. After these fraudsters dump their shares and stop hyping the stock, the price typically falls, and investors lose their money.

In Idaho, pump and dump schemes are considered a form of securities fraud and are illegal under both state and federal law. The Idaho Uniform Securities Act (Idaho Code §§ 30-14-101 through 30-14-603) prohibits fraudulent and deceptive practices in connection with the offer, sale, or purchase of securities. This includes making false or misleading statements about a company to artificially inflate stock prices. At the federal level, the Securities and Exchange Commission (SEC) enforces rules against market manipulation, including pump and dump schemes, under the Securities Exchange Act of 1934. Violators of these laws may face both civil and criminal penalties, including fines, restitution, and imprisonment. Investors in Idaho who believe they have been victims of a pump and dump scheme can report the activity to the Idaho Department of Finance, which regulates securities in the state, as well as to the SEC.