The History of Pump and Dump Schemes

From Boiler Rooms to Digital Currencies

Pump and dump schemes, one of the oldest forms of market manipulation, have plagued financial markets for as long as they have existed. These schemes involve inflating the price of an asset through false or misleading statements (the “pump”) before selling off the overvalued shares at a profit (the “dump”), leaving unsuspecting investors to face significant losses as the price collapses. This deceptive practice has evolved over the years, adapting to new technologies and markets, including the burgeoning world of cryptocurrency. This article explores the history of pump and dump schemes, from their origins in the stock market to their current manifestation in the digital currency space.

The Early Days: Stocks and Boiler Rooms

The roots of pump and dump schemes trace back to the early stock markets, where unscrupulous traders would manipulate the prices of stocks. However, it was during the late 19th and early 20th centuries, with the advent of mass communication technologies like the telegraph and telephone, that these schemes began to proliferate. Traders would “pump” stocks through a barrage of positive publicity, often fabricated or grossly exaggerated, to lure investors.