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 New York, as in other states, pump and dump schemes are considered a form of securities fraud and are illegal under both state and federal law. The New York Attorney General's office can investigate and prosecute these schemes under the Martin Act, which is one of the country's oldest and most stringent securities laws. The Martin Act grants the Attorney General broad powers in regulating securities and prosecuting fraud. At the federal level, the Securities and Exchange Commission (SEC) also targets pump and dump schemes under various securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws prohibit manipulative and deceptive practices in the securities markets, making it illegal to spread false or misleading information to investors. Perpetrators of pump and dump schemes may face severe penalties, including fines and imprisonment.