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Stock Scams Change With The Times
By John M. Gannon
Spring 2007
You’ve probably heard the expression, “The more things change, the more they stay the same.” It applies to stock scams, too. Scam artists profit by staying current, using the latest technology to carry out their schemes and playing off the hottest trends to lure new targets. But their objective is the same as always: to persuade you to part with your money.
Here’s a recent scam that’s been making the e-mail rounds. You open your inbox and you’ve got a message from Tanya or Weldon or maybe Kristy. You open it and read some poorly-worded prose like the following (from a spam e-mail received by NASD):
”Hi I hope this is your email. I was pleased to meet you the other day. I expect you was excited about New York. So much so much happening all the time, lot of great opportunities. And speaking of opportunities, the deal I was speaking about yesterday involves a company known as…”
You're encouraged to get in early and buy the stock.
“It's already heading up, but the big news isn't even out yet, so there's still time. I have got this shares already and made 2000. I propose you do the same. Hope this helps you out. I'll see you this weekend.”
No, you don't have amnesia. You've never met the person who sent you the e-mail. In all likelihood, the message is from someone who is getting paid to send it to thousands of e-mail addresses, hoping that you and others will fall for the scam and buy shares of the recommended stock.
It’s just a new twist on the old “pump-and-dump” scheme. Pump-and-dump scams involve the recommendation of a company's stock through false and misleading statements – the pump. Misled investors then buy the stock, creating demand and often causing the price to soar. Fraudsters then sell off their shares – the dump – usually leaving investors with worthless or near-worthless stock.
Here’s another recent ploy. You get text messaged on your cell phone but it's not from anyone you know. Instead, it's an unsolicited promotion for a low-priced “hot stock.” The short message includes a stock symbol and reads, “HOT BUY. 200% Profit Mon. 100% IN 2WKS.” You've been cell phone spammed! You may even have to pay for the spam text message you just received!
As with the e-mail scam, the people behind these messages likely are paid to promote the stock – or perhaps they own some of it themselves. In either case, you’ve come face to face with a new tactic for an old scam: the classic pump and dump.
To avoid cell phone spam, register your cell phone number on the National Do Not Call Registry. You may register online at www.donotcall.gov or by phone by calling toll-free 800-382-1222 from the number you wish to register. Since many states now have their own do-not-call lists, contact your state's consumer protection office or public utilities commission to see if your state has such a list and how to register.
Eliminating e-mail spam can be more difficult if the spammer fakes the name that appears in the "From" line. It is frighteningly easy for fraudsters to create e-mails that appear to be from someone you know or from a company you recognize. Spam blockers and anti-virus protection are critical. Even if you recognize a sender's name or think the e-mail looks legitimate, be very skeptical!
To avoid potential scams, get the information you need to make a wise investment choice:
Investigate before you invest. Never rely solely on information you receive in an unsolicited fax, text message or e-mail.
Always ask: “Why me?” Most pump-and-dump scams take the form of unsolicited messages, which raises the obvious question: Why would a total stranger send you an e-mail about a really great investment opportunity? The answer is that there is no such opportunity.
Find out where the stock trades. Most unsolicited spam stocks are quoted on the OTC Bulletin Board (OTCBB) or in the Pink Sheets. Unlike stocks that trade on the New York Stock Exchange, Nasdaq or American Stock Exchange, stocks on the OTCBB and Pink Sheets maintain no minimum quantitative standards that must be met by a company to have its securities quoted. In addition, the stock may trade infrequently, making it difficult to sell your securities at a later date.
Read a company's SEC filings, if available. Most public companies file reports with the Securities and Exchange Commission (SEC). Check the SEC's online EDGAR database to find out whether the company files with the SEC. But just because a company has registered its securities or has filed reports with the SEC, it is not necessarily a good investment.
That said, by far the best way to avoid being taken in by these “new tech” scams is simply to ignore them.
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John Gannon leads investor education initiatives for NASD, the world’s leading private-sector provider of financial regulatory services. Visit www.saveandinvest.org, a comprehensive website from the NASD Investor Education Foundation to help service members manage their money with confidence.