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Pump & dump – stock spam scam

Posted by Michael Bloch in online world (Monday April 10, 2006 )

Crooked investors buy large quanities of low priced shares in small companies, then pay spam gangs to send out millions of emails containing claims of insider information – stating that the shares will soon gain a great deal of value for whatever reason. Naive investors respond to the false information, driving the value of the stock up; the crooked investors then cash in, the stock then plummets again.

And even though this type of scam, like Nigerian scams, have been around for a long time; people still get caught out – in fact, stock spam appears to be on the increase again.

This scam interests me as unlike other scams, there is probably a great deal of investment on the part of the scammer – the purchase of the cheap stocks, then paying the spam gangs to perform the huge mailouts necessary in order to generate the kind of buzz that will boost the share values. According to some articles I’ve read on the subject, in most cases organized crime is involved – the players who have cash to burn and dirty money that needs laundering.

Related articles:

Spam and virus emails – how they end up in your inbox
Anti spam – email filtering and blocking services guide

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Trying saying stock spam scam out loud really fast 5 times ;).

I’m sure that you’ve often received “traders alerts” and “hot stock tips” spam in your inbox. And no doubt you probably ignored them as I do. Even so, I’ve always wondered how these scams worked. As someone who is pretty ignorant of the stock market, I initially thought that there would be some number to call, link to click or email address to respond to and then the fleecing process would begin. But if you read over these emails thoroughly, there’s nothing of the sort.

So how do the spammers make cash from these mailings?

It’s called a “pump and dump” scam.

Also referred as “hype and dump manipulation” by the SEC, pump and dump spam scams involve *real* companies involve microcap stocks — low-priced shares.

Crooked investors buy large quanities of low priced shares in small companies, then pay spam gangs to send out millions of emails containing claims of insider information – stating that the shares will soon gain a great deal of value for whatever reason. Naive investors respond to the false information, driving the value of the stock up; the crooked investors then cash in, the stock then plummets again.

And even though this type of scam, like Nigerian scams, have been around for a long time; people still get caught out – in fact, stock spam appears to be on the increase again.

This scam interests me as unlike other scams, there is probably a great deal of investment on the part of the scammer – the purchase of the cheap stocks, then paying the spam gangs to perform the huge mailouts necessary in order to generate the kind of buzz that will boost the share values. According to some articles I’ve read on the subject, in most cases organized crime is involved – the players who have cash to burn and dirty money that needs laundering.

Related articles:

Spam and virus emails – how they end up in your inbox
Anti spam – email filtering and blocking services guide



 

 
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