The Leech Fever Pump and Dump

Over the last decade or so the phenomenon of the penny-stock "pump and dump" scam has risen in prevalence, mostly thanks to a variety of email spammers (I get something like 10-20 emails a day on the subject). The general idea behind the process is simple: 

1. Buy a worthless asset in large quantities at a low (fair) price
   
2. "Invent Demand", by convincing as many people as possible to purchase the same asset. This increase in demand drives up the price of the (still worthless) asset. The increase in price seems to confirm your sales pitch of (in one example) a "stock ready to pop!"
3. Sell your bulk asset at its inflated value, popping the bubble and transferring the wealth of the gullible masses into your hands. 

This tactic is usually used in the lightly regulated "pink slip" stock exchanges, and often triggered on small fluctuations in spammed-about stocks. It is not to be confused with HFT (high frequency trading), in which much smaller gains are accomplished by exploiting latencies in network connections. As is the case in the world, these scams provoke Golden Age theories (see comments) decrying technology and its corruptive, harmful role in society. Of course this is baloney, because the "pump and dump" scheme is as old as time. 

Here's an example, from an article in the vietnam vet about the "Leech Fever" taking over some villages in Vietnam.  A group of wealthy investors comes in and buys up leeches, for reasons unknown. This causes a tremendous flux of people out of their jobs and into the rivers, trying to catch the abundant leeches to sell them. Local "businessmen", called "collectors", aggregate leeches by paying larger and larger prices for them, banking on the demand caused by the foreign investors. As this false demand grows, so too does the prices of leeches. The investors then sell their initial supply, make a tidy profit, and disappear to a town covered in dried leeches. 

So this is not a high-tech development, just a new and creative scam. Moral of the story: If you are buying something which you know to have no value beforehand, don't be mad when you get left with a bag of leeches. 

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