Pump and Dump is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme "dump" (sell) their overvalued shares, the price falls and investors lose their money. This is most common with small cap cryptocurrencies and very small corporations or companies, i.e. "microcaps."
While fraudsters in the past relied on cold calls, the Internet now offers a cheaper and easier way of reaching large numbers of potential investors through spam email, investment research websites, social media, and misinformation.
Mr. Cohen sold his entire stake in the home-goods retailer on Aug. 16 and 17, just months after he took a significant position in the company and pledged to force changes there. Shares tumbled after news of his sales came out on the afternoon of the 17th, but meanwhile Mr. Cohen benefited from a huge surge in volume that enabled him to sell millions of shares while prices rose.
Bed Bath & Beyond stock has lost more than half its value since Mr. Cohen sold his shares. The company has selected asset manager Sixth Street Partners, a Dallas-based firm that makes loans to troubled companies, to provide new financing. Some vendors have been pulling credit to the company in recent weeks, sources have told The Wall Street Journal.
Some analysts say Mr. Cohen took advantage of the exuberance of those who favor speculative securities known as meme stocks. These investors, who call themselves “apes,” are among individuals who purchased a net $131 million of Bed Bath & Beyond shares on Aug. 16 and 17, according to Vanda Research. Filings show Mr. Cohen sold $178 million of the stock over that period.
“The apes have a target on their back,” said Daniel Taylor, an accounting professor at the University of Pennsylvania’s Wharton School of Business who studies insider trading. “It’s either the CEOs of the companies who are going to exploit that or these outside individuals like Ryan Cohen.”