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 Pennsylvania, pump and dump schemes are considered a form of securities fraud and are illegal under both state and federal law. The Pennsylvania Securities Act of 1972, as well as federal securities laws, particularly the Securities Exchange Act of 1934, prohibit manipulative and deceptive practices in connection with the purchase or sale of securities. This includes making false or misleading statements about a company to artificially inflate the stock price (the 'pump') and then selling off the stock at the inflated price for a profit (the 'dump'), which often results in financial loss for other investors. The enforcement of these laws is carried out by the Pennsylvania Securities Commission at the state level and by the Securities and Exchange Commission (SEC) at the federal level. Violations can lead to severe penalties, including fines, restitution, and imprisonment for individuals involved in such schemes.