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 Rhode Island, pump and dump schemes are considered a form of securities fraud and are illegal under both state and federal law. The Rhode Island Securities Act, as well as federal securities laws, including the Securities Exchange Act of 1934, prohibit manipulative and deceptive practices in connection with the purchase and sale of securities. These laws are enforced by the Rhode Island Department of Business Regulation's Securities Division and the U.S. Securities and Exchange Commission (SEC). The SEC can bring civil enforcement actions against individuals or companies who engage in pump and dump schemes, and violators may face substantial fines, disgorgement of profits, and potentially even criminal charges. Rhode Island investors who believe they have been victims of a pump and dump scheme can report the activity to the state's Securities Division or the SEC.