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 Minnesota, pump and dump schemes are considered a form of securities fraud and are illegal under both state and federal law. The Minnesota Securities Act, along with federal legislation such as the Securities Exchange Act of 1934, prohibits manipulative and deceptive practices in the trading of securities. This includes making false or misleading statements about a company to artificially inflate stock prices for personal gain. The Minnesota Department of Commerce is responsible for enforcing securities laws and can investigate and take action against individuals and entities involved in pump and dump schemes. Additionally, the U.S. Securities and Exchange Commission (SEC) may also investigate and prosecute such fraud under federal law. Penalties for those convicted of pump and dump schemes can include fines, restitution, and imprisonment.