TIL What a Pump and Dump is

I was reading Hacker News a couple days back and saw this post from a guy that he was being pushed stock for a video company that was completely illegitimate. 

TL;DR the company claims that they will help stream HD videos to devices with slower internet connections (e.g. a mobile phone) by using their special software which reduces the size of a currently compressed video to around 10x less. And the guy who wrote the post, took one of their sample videos on their website and realized they just used simple encoding and slowed the frame rate of the video from normal 24/30 fps to about 6 fps...

So this guy was seeing the company, Raystream, have it's penny stock shoot up several fold and had no idea why. Well my friends... it turns out they have a name for that sort of thing: a pump and dump.

Admittedly I don't really have a great handle of exactly what it is and how it works, since everything I learned about a pump and dump I learned from watching the videos here, but here is what I've gathered.

Organizations with newsletters, or just random people, with lots of money and no morals, will spend millions of dollars working to publicize a stock thats worth a few cents. They will get sales people to make calls, post ads on financial newsletters, and basically pull all the stops so they can get a huge volume of this cheap (and completely worthless stock) sold and raise the prices.

Usually the price will spike up for about 3 days (that's usually the max it will last) sometimes from 2 cents to 2 dollars (for those who can't do math that's a 10,000% increase btw) and then come crashing down. It sucks for the people who got in late, but is hugely successful for those who got in early (the promoters and some other lucky few) and those who were able to by the few shorts available.

So just watch out for those. But if you see one of these pump and dump's happening, you think it's still going to go up, and you're willing to take the risk, you could make a lot of money. But if you time it wrong... you're toast.