Published on March 6th, 2012 | by Tom Wake2
Beware of this ‘Pump and Dump’ trading scam
Apparently the stock in question “could explode this week” and “with the combination of recent events, a 57% profit could be peanuts to investors now…”
*strokes chin sarcastically*
This is an out and out Boiler Room scam – or as it’s also commonly known – a ‘Pump and Dump’ pitch.
Here’s how it works:
1) A spammer sends out a mass email to hundreds of thousands (in some cases millions) of unsuspecting readers ‘pumping up’ a specific Penny Stock. They give you a slick pitch raving about the stock, implying the huge potential gains. Often they’ll link through to articles on Yahoo and MSN about the stock in question – as if to indicate it has some special potential. The fact is you can easily find an article on any stock online – it doesn’t mean anything.
2) They then give the hard sell and invite you to strike right now while it’s hot. The best gains are yet to come for savvy investors – all that sort of jargon. In the past this sort of scam was done by dodgy shotgun telephone call centres in Europe. They’re called ‘Boiler Rooms’ because they were often housed in shoddy makeshift office spaces in cheap plots – in basements and next to boiler rooms. These days they can use the Internet to harpoon victims en masse.
3) People who buy the stock will quickly find the price tumbling at warp speed until they’re worth nothing or just a fraction of what you paid for them.
Sadly unless you’re a paid up member of a trustworthy and reputable share tipping service no one’s going to send you a valid Penny Stocks tip for free.
So how do the scammers cash in exactly? Well, there are some very revealing details on this particular company’s disclaimer which explain how the scam works very succintly…
“Please be advised that UpcomingPennyStocks.com has received a total of three hundred thousand dollars to date from Jemsta Entreprises Ltd, who was paid by shareholders of the profiled company for the sending of this email/newsletter. Those shareholders will sell their stock at or about the time the said services are performed. Further, it must be understood that the liquidation of those shares may negatively impact the share price…
… Hindla LTD and anyone mentioned in this report, and members of their families may hold a position and may SELL their entire positions or trade in these securities for their own accounts including when this report is distributed. UpcomingPennyStock.com has not investigated the background of MSTG. UpcomingPennyStocks.com has received this amount as a production budget for advertising efforts and will retain amounts over and above the cost production, copywriting services, mailing and other distribution expenses as a fee for our services. As such, our opinion is neither unbiased nor
What does all that mean?
It means that company A, who owns a shed load (or all) of the Penny Stocks in a company, pays company B to write a dodgy sales letter and spam thousands of people telling them that the stock price is about to soar.
The purpose of this is to rally people into snapping up the stocks. In the meantime company A sells all of their stock at a vastly inflated price to this wave of sitting ducks. By close of play they’ve cashed in while the duped investors are left with a virtually worthless stock.
That’s why it’s called ‘Pump and Dump’ – They pump up a useless stock to trigger a buying frenzy, then they dump it at an inflated price until all the value’s been sucked out. It’s a serious money-spinner – the fact that they’re able to pay the email blasters $300,000 is testament to that.
If you’re interested these particular spam emails came from a few addresses:
Here’s a screenshot from my inbox:
They will no doubt close down soon. Always be on your guard as they can come from anywhere. These websites will pop up all over the place with new names and new scams.
Avoid like the plague…