Phase 5:  The Dump. Once the price is at a sufficient level, the promoters sell their own stock during the promotion campaign to unsuspecting buyers.

Phase 6: The Loss. Once the promoters have sold their entire position, the promotional campaign stops. With no new buying coming in, the price of the stock plummets. With no new news, there is no reason for new buyers to come into the market. At some point existing buyers figure out that the stock is worthless and they sell at whatever price necessary to recover any amount of their original investment. The stock price then spirals down or in most cases drifts down to oblivion with unsuspecting investors losing a great deal of money.

Some investors try to outsmart the promoter by trying to get in early enough to buy the target stock at low prices and make money, like the promoter, when the price rises. It is very difficult to time the market since the investor will not know at what stage the promotion is. Our advice: Don't play with fire.If you are an unsophisticated investor, stick to the more senior, larger cap securities about which there is more credible information.

What to do?

To avoid being the victim of the Pump and Dump, keep in mind the following:

• Beware of unsolicited email or telephone calls. Only deal with people you know. If you have any questions about a penny stock, call your broker who can assist you in learning more about a stock.

 
• Don't make hasty decisions after speaking with a promoter or after hearing a tip.

 
• Don't believe any promise of great profits at no risk. No investment can deliver guaranteed profits at no risk.

 
• Don't believe in claims of inside information.

 
• Do your own research. Look at any recent press releases of the company and take the company at face value.