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Pump and dump spam crackdown

Posted by Michael Bloch in online world (Saturday March 10, 2007 )

I first wrote about pump and dump stock spam scams around a year ago. Since that time I haven’t seen much of a let up on these sorts of spam emails; so I was thinking it must be still profitable for the perpetrators. According to the SEC, it certainly is.

Just briefly, a pump and dump scam works like this:

The scammers purchase quanities of low priced shares, then use professional spammers to send out millions of emails hyping the stocks; claiming insider information. Other investors respond by purchasing the shares on the promise of a quick buick, driving the value of the stock up; the fraudsters sell off their shares, and soon after the price crashes.

Given the way these emails are structured and the many warnings about these scams; you’d think that no-one could possibly be falling for this sort of fraud any more; but the SEC (Securities and Exchange Commission) recently suspended 35 companies from trading on the stock market in a recent crackdown on successful pump and dump scams.

In one incident late last year, a company closed trading at 6 cents per share, then after a weekend spam campaign containing hype and misleading information; the stocks rose to 45c a share within just 5 days… and then back down to 10c seven days later. You can guess the point at which the scammers exited.

According to the SEC, 100 million pump and dump spam emails are sent out each week. If you’re an investor, you can learn more about about avoiding falling victim to pump and dump scams here and here; but to me it boils down to the old maxim that’s applicable in any scenario; “if it seems to good to be true, it probably is” .

Read more about the SEC’s trading suspension blitz.

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