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Scams and Scalawags Internet combined with telemarketing in pump and dump investment fraud | |
| By Leonard J. Hansen | |
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Now you see it, now you don’t. The magician dramatically declares such when presenting an illusion. In magic; it is pretend plus a lot of suggestion about what you are viewing. It may be fascinating, amazing. Scalawags learned this concept of pretense and have taken it to a new vicious and effective level of investment fraud. If you have ever responded to a questionable investment offer, you may be on a mooch list - already being hit by telephone pitches, mail promotions, newsletters and special insider offers on a "phenomenal stock which is undervalued and sure to skyrocket in price over the next few weeks." In the investment fraud business, the name has been changed from "now you see it, now you don’t" to "pump and dump." This is one of the many forms of investment fraud which rip $10 billion each year from Americans. A bit of history Many years ago small company investments were called penny stocks, many hawked by telemarketers and by direct mail. Fraud in penny stocks was so rampant that federal agencies and the investment industry clamped down, agreeing to new, restrictive regulations for all stocks with a street value of up to $5. The wide-open hucksterism of the time was dealt a heavy blow by law, that is, until the Internet could be used to lure an entirely new generation of buyers by promising rapid escalation in value. Today, many elements combine which take the former concept of penny stocks to wide open and mostly-successful fraud. First, a quick look at the investment market. The federal Securities and Exchange Commission (SEC) has strict regulations and reporting requirements for companies with more than 500 investors and $10 million or more in assets, or lists its securities on the American Stock Exchange, Boston Stock Exchange, Cincinnati Stock Exchange, Chicago Stock Exchange, Nasdaq Stock Market, New York Stock Exchange, Pacific Exchange or the Philadelphia Stock Exchange. You can easily access the filings to know the financial and operating facts about each company. The next, but giant, step down are microcap stocks quoted on Over-the-Counter Bulletin Board (operated by the National Association of Securities Dealers, Inc.), the Pink Sheets (operated by the National Quotation Bureau) or the Nasdaq Small Cap Market.. Only half of the microcap companies file financial and other reports with the SEC. Microcaps are typically thinly-capitalized and stock promotion is often controlled by market-making firms. Many are legitimate companies trying to grow; but today many are blatant scams. Here is the illusion perpetrated by scalawags. The schemer and cohorts acquire the stock of a marginal or struggling business for little or nothing, and then assume executive positions within the firm or act as a brokerage or investment company. Their mission is to promote the stock outrageously through aggressive and exaggerated news releases, messages in Internet chat rooms, spam junk mail, phony newsletters and testimonials, all claiming that the company value is about to skyrocket because of new gains such as business increases, acquisitions, inventions, discoveries and/or strategic relationships. By hammering both online and by aggressive, sometimes abusive, telemarketing, the aim to. take a stock value from a real level of perhaps one-hundredth of a cent to above $5 and then to as high as $100-plus dollars per share, all based on untrue claims. The message presents your "insider report that the stock is sure to increase in value by 10, 20, 30 or more times today’s price, and you can get in now if you buy today." As the price skyrockets, the scalawags sell their own stock to the scammed victims, raking in millions - and then they step out. They have pumped a worthless stock and then dumped it, probably within a period of six months, and are gone from the scene before stock purchasers realize that they are victims of a vicious fraud and file complaints. Like most frauds the promise of riches is almost too good to be true. Pump and Dump stock frauds may number in the hundreds at any one time, each raking in several million dollars before the inevitable dumping as worthless. The SEC operates a task force for identifying and investigating the scams; but just as the public is aggressively swindled, the pump and dump schemes have paid off for the scalawags and the stock is dumped most often before the feds can close in on them. Knowing that the SEC and other federal agencies can only investigate and prosecute a minuscule percentage of these scams, the first line of defense is individual responsibility and self-protection when reading about, considering or receiving a pitch for the "stock which is about to skyrocket in price." Only if the pump and dump has engaged the services of a traditional brokerage for certificate clearing or other services, an arbitration action for some recovery may be possible through the National Association of Securities Dealers, Inc. If not, investors can kiss the money and their dreams of riches goodbye. How to avoid being a Pump and Dump victim It sounds trite, because you have heard it a thousand times: investigate before you invest.
If you have invested anywhere, you are probably on a telemarketing sucker list to be called, e-mailed, hyped outrageously and, if the scalawags are successful, conned holding a bucket full of nothing. The magician works his her illusion and you can be amazed and entertained. In the pump and dump investment fraud an illusion will be created but you will not be amazed; you will, without question, be a 100 percent loser. |
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