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 Missouri, pump and dump schemes are considered a form of securities fraud and are illegal under both state and federal law. The Missouri Securities Act of 2003 prohibits fraudulent and deceptive practices in the sale of securities, including making false or misleading statements to manipulate stock prices. Violations of the Act can lead to both civil and criminal penalties, including fines and imprisonment. Additionally, federal laws enforced by the Securities and Exchange Commission (SEC), such as the Securities Act of 1933 and the Securities Exchange Act of 1934, also prohibit pump and dump schemes. These laws make it illegal to engage in any manipulative or deceptive conduct in connection with the purchase or sale of any security. The SEC can impose sanctions, including fines, disgorgement of profits, and bans from participating in the securities industry. Investors in Missouri who believe they have been victims of a pump and dump scheme can report the activity to the Missouri Securities Division or the SEC.