Pump&Dump.con:
Tips for Avoiding Stock Scams
on the Internet
One of the most common Internet frauds involves the classic "pump and dump" scheme. Here's how it works: A company's web site may feature a glowing press release about its financial health or some new product or innovation. Newsletters that purport to offer unbiased recommendations may suddenly tout the company as the latest "hot" stock. Messages in chat rooms and bulletin board postings may urge you to buy the stock quickly or to sell before the price goes down. Or you may even hear the company mentioned by a radio or TV analyst.
Unwitting investors then purchase the stock in droves, creating high demand and pumping up the price. But when the fraudsters behind the scheme sell their shares at the peak and stop hyping the stock, the price plummets, and investors lose their money.
Fraudsters frequently use this ploy with small, thinly traded companies because it's easier to manipulate a stock when there's little or no information available about the company. To steer clear of potential scams, always investigate before you invest:
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Consider the Source
When you see an offer on the Internet, assume it is a scam, until you can prove through your own research that it is legitimate. And remember that the people touting the stock may well be insiders of the company or paid promoters who stand to profit handsomely if you trade.
- Find Out Where the Stock Trades
Many of the smallest and most thinly traded stocks cannot meet the listing requirements of the Nasdaq Stock Market or a national exchange, such as the New York Stock Exchange. Instead they trade in the "over-the-counter" market and are quoted on OTC systems, such as the OTC Bulletin Board or the Pink Sheets. Stocks that trade in the OTC market are generally among the most risky and most susceptible to manipulation.
- Independently Verify Claims
It's easy for a company or its promoters to make grandiose claims about new product developments, lucrative contracts, or the company's financial health. But before you invest, make sure you've independently verified those claims.
Research the Opportunity
Always ask for — and carefully read — the prospectus or current financial statements. Check the SEC's EDGAR database to see whether the investment is registered. Some smaller companies don't have to register their securities offerings with the SEC, so always check with your state securities regulator , too.
- Watch Out for High-Pressure Pitches
Beware of promoters who pressure you to buy before you have a chance to think about and fully investigate the so-called "opportunity." Don't fall for the line that you'll lose out on a "once-in-a-lifetime" chance to make big money if you don't act quickly.
- Always Be Skeptical
Whenever someone you don't know offers you a hot stock tip, ask yourself: Why me? Why is this stranger giving me this tip? How might he or she benefit if I trade?
For more information on how to use the Internet to invest wisely and avoid fraud, be sure to visit our Internet and Online Trading web page. There you'll find a vast array of tips, including Internet Fraud: How to Avoid Internet Investment Scams.
This information has been publicised as a public service and is © The US SEcurities and Exchange Commission. It comes from the SEC website
Examples of Pump and Dump:
Today the Compliance and Privacy editor's inbox received 40 pump and dump emails. Here are some examples which you are most strongly advised not to fall for
[C&P Note: It's a scam. Do not fall for it]
Symbol: MXXR
Current price: Around $0.018
Short Term Target: $0.10
Long Term Target: $0.45
Results from MXXR's latest drilling will be announced very soon. Excitement is building, and the inside word is that the results will exceed expectations!
In order to benefit from this lucrative opportunity you need to get in now, before the big news release. There's still time, but not much. The news could be out as early as Tuesday, November 13th.
THIS is the one you've been waiting for! Do yourself a favor and make that big score!
[C&P Note: It's a scam. Do not fall for it]
[C&P Note: It's a scam. Do not fall for it]
We called it yesterday and now it's up 100%! Brand new issue, Cana Petroleum, heading straight up!
VERY tightly held, in a booming business sector, with a huge publicity campaign starting up, Cana Petroleum (CNPM) is already bringing our readers huge gains. We advise you to get in on this one as well and ride it to the top!
Symbol: CNPM
Current Price: 5.87
Projected Price: $15.40
Check the stats! Check the level 2! Imagine what this one will do when the full force of the PR campaign hits it, in conjunction with smashing news!
Major oil discovery? We are not permitted to say at this point. All we can say is that this one is going to see amazing appreciation in a very short period of time! This is your opportunity. Win big with CNPM!
[C&P Note: It's a scam. Do not fall for it]
At least weight loss and body enhancement scams only mean you lose a little money. This pump and dump trash appeals to greed. The more you invest the more you get back, right?
Wrong!
It's a victimless crime, they're only trading in stocks and shares.
Wrong! |
