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 Tennessee, as in other states, 'pump and dump' schemes are considered a form of securities fraud and are illegal under both state and federal law. These schemes violate the Tennessee Securities Act of 1980, which prohibits fraudulent and deceptive practices in the sale of securities. 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 such schemes. The SEC can take civil action against individuals or companies involved in pump and dump schemes, and criminal prosecution can occur under federal securities laws. Penalties for those convicted of participating in pump and dump schemes can include fines, restitution, and imprisonment. It is important for investors to be cautious of unsolicited investment advice and to conduct their own research before investing in any stock, especially if the stock is being promoted through aggressive tactics that promise high returns.