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ScamU: Beware of the Pump and Dump Swindle

Posted by Jerry De Luca on Thursday, July 12, 2012

Investors interested in stocks need to make sure the company they’re looking at is actually listed on the American stock exchange. Many fraud artists have their company only listed on the Canadian exchange. Canada’s security enforcement agencies are nowhere near as strict and thorough as the powerful US Securities and Exchange Commission.

The scammer basically creates a demand for useless stocks for his fraudulent company. He makes potential investors view the company as profitable and that many other investors want in.  

First, a press release is sent out describing the recent successes of the company. This is easy even for small businesses. There are many press release distribution services, such as news wire services, that do it for a small fee. 

Secondly, the scammer influences the information gathered by the stock exchange. His partners in crime then trade thousands of shares of the stock among themselves several times a day, gradually nudging up the value. Potential investors see the increase in value and that many other investors are involved in buying and selling. Also, “affiliated” stockbrokers recommend the stock to their clients.  

Once the target price is reached, the partners in crime stop buying and selling and all the stocks are sold to unsuspicious investors. All of a sudden there are no more press releases, no one is buying and selling, and the stock soon plummets.

Pat Huddleston, The Vigilant Investor, American Management Association Publishers, 2012

Photo: dolphinsdock (flickr) 

Jerry De Luca is a Christian freelance writer who loves perusing dozens of interesting and informative publications. When he finds any useful info he summarizes it, taking the main points, and creates a (hopefully) helpful blog post.