Scams - Pump & Dump
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The scam experts use e-mail, newsletter, bulletin boards, chat rooms and instant messaging to support thinly traded, small stocks. These promoters take different guises sometimes posing as industry players or average consumers who dump their holdings after the stock rises and thus make profit through it. The past online experience persuades the victim to take hurried action and thus they end up losing substantial sums when prices fall because of dumping.
Last year the Securities and Exchange Commission resorted to a nationwide Internet sweep and went against many companies involved in pump-and-dump schemes.
One of the greatest scams that recently took place was by Stockstowatch an Internet touting service that claimed to have over 200,000 subscribers. The company deceitfully promoted the stocks of almost five publicly traded microcap companies. The “buy recommendations” sharply increased its prices enabling Stockstowatch and its president Steven A. King to make around $1 million in the process. Thus, the whole scam works on touting advance information on particular stocks to raise its price more than its actual worth and make money through it. The promoters initially pump the price and then dump the investors.
Sometimes you may come across information stating that the rising oil prices have set the stage for new producing fields in different oil-rich states and the trend shows promising returns if you buy its shares. This is nothing but a trap laid for potential investors to dump their money in it. Pump and dump scam hit hardest during the late 1990s. It is amazing to know that a 15-year old made $273,000 through this fraudulent method. Wall Street also contributed to such schemes by over-hyping stocks that were of no value in the house.
Brightmail, a San Francisco outfit that filters e-mails internationally points out that the financial based spam is showing an increase with every one in five mails of this nature. Thus, internal vigilance can alone save you from the pump and dump pitfalls.
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