Stock Alert Scams
Have you received an email from that looks like a grainy image telling you about a great stock that is "about to explode", "rocket through the roof" or is "hot"? It is a scam. Commonly called pump-and-dump, it is an old scam using the new technology. Usually, the stocks recommended are real U.S. penny stocks.
Pumping and dumping is one of the oldest and easiest cons around. Basically, the scammer buys some cheap penny stocks, sends out hundreds of thousands of emails like the one you received, waits for enough gullible idiots to buy some of the stock to drive up the price, and then sells his stock at a profit. In one sample case provided by the SEC, a scam involved shares of Apparel Manufacturing Associates Inc.. the stock went from 6 cents, on trading volume of 3,500 shares one day in December 2006 to over 19 cents per share on a volume of 484,568 shares by the next business day. And two days later, it hit 45 cents a share. But a week later, after the scammer sold out, Apparel Manufacturing stock was back down to 10 cents on volume of 65,350.
Since the scammer can be anywhere on the planet, and there is no connection between the investors and the scammer other than the one scam email, there is nothing to lead a trail back to the perpetrator. The victims buy the stock through their usual stock trader, Etrade, Ameritrade, Scott Trade or their analyst.
And since there are thousands of penny stocks on the U.S.-based OTC Bulletin Board, which is a share price quote service for companies that don't meet the stiffer requirements of major stock exchanges, or on "Pink Sheets".
It is estimated (according to Commtouch, an international e-mail
security firm) that of the 160 billion email messages a day in 2006, 90% are
spam, and of those, other research suggest that 15% (or 21 billion emails per
day) are stock scams.
To avoid spam-filtering software, the scammers deliberately misspell words that
the filters look for and use image files (JPEG or GIF files) to present the text
as a pictures. And if you look closely at repeated e-mails touting the same
stock, the words may be jiggled or appear in different sizes.
To send so many spam emails, the scammers use zombie computers: they use a
botnet-herding viruses and worms infect ordinary people's computers and then
send spam from them, unknown to the owner (they only may notice that their
computer has slowed down). One bot found by the U.S. Department of Homeland
Security was sending e-mails from 226,525 computers.
Authorities are trying to catch the spammers. In January, the U.S. Securities
and Exchange Commission (SEC) filed a complaint against Aleksey Kamardin, a
21-year-old Florida college student who they say made $82,960 in six weeks by
manipulating 17 stocks. He bought shares in target companies, then hacked into
victims' online investment accounts, sold their stocks and bought more shares in
the targets. That drove up share prices, after which Kamardin then sold his
stock. He wasn't captured though - it is reported that he fled to Russia.
The SEC announced Operation Spamalot in early 2007, which suspended trading for
10 days in 35 Pink Sheet companies that had been touted in pump-and-dump
schemes.
The bottom line: don't buy stocks based on emails you receive from strangers! (May we say "duh!" ?)
Companies recently used in pump-and-dump scams:
Advanced Powerline Technologies Inc., America Asia Petroleum
Corp., Amerossi International Group Inc., Apparel Manufacturing, Asgard Holdings
Inc., Biogenerics Ltd., China Gold Corp., CTR Investments & Consulting Inc., DC
Brands International Inc., Equal Trading Inc., Equitable Mining Corp., Espion
International Inc., Goldmark Industries Inc., GroFeed Inc., Healtheuniverse
Inc., Interlink Global Corp., Investigative Services Agencies Inc., iPackets
International Inc., Koko Petroleum Inc., Leatt Corp., LOM Logistics Inc., Modern
Energy Corp., National Healthcare Logistics Inc., Presidents Financial Corp.,
Red Truck Entertainment Inc., Relay Capital Corp., Rodedawg International
Industries Inc., Rouchon Industries Inc., Software Effective Solutions Corp.,
Solucorp Industries Ltd., Sports-stuff.com Inc., UBA Technology Inc., Wataire
Industries Inc., WayPoint Biomedical Holdings Inc. and Wineco Productions Inc.
For more information, visit the Securities and Exchange Commission website.
And if you have any information related to stock spams, email the SEC at
35suspensions@sec.gov.
Below are some typical examples of these scam pump-and-dump stock scams:
Sample Stock Scam Emails:
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And please let us know about any suspicious calls or emails you receive. We look for patterns so that we can alert the authorities and victims to new scams, before it is too late!
For a comprehensive list of national and international agencies to report scams, see this page.