SEC, Finra Warn of Sharp Increase in Pump and Dump Spam

E-tickerSo-called pump and dump spam is on the rise, and it’s a sharp increase, the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (Finra) warned investors this week. In stories stemming from The Wall Street Journal and several other sources, schemes involving pump and dump stock offers are on the rise and email users should be wary of these schemes, which promise tales of untold riches, yet have no real effect other than separating investors from their hard-earned money.

The pump and dump scheme is nothing new. Spammers blast emails offering ‘hot tips’ on companies, often small, microcap companies (companies with limited assets, low-priced stock, and modest trading volumes), luring recipients into purchasing the stock. The hope is that by stimulating company stock sales, the price of the stock will be driven up, at which time the sender can dump their stock and sell it for a profit. Any information provided by the email about a company’s chances for a big payday is, of course, misleading and illegal.

According to Investment News, “E-mail stock spamming is back in high gear.” Citing a report by Intel Corporation’s security subsidiary, the report also notes that, in addition to email spam campaigns, the spammers are taking full advantage of social media. “These messages also are being sent through social media, such as Facebook and Twitter.”

“Don’t fall for these scams,” Investment News cites the release from Intel. “They are the ‘inbox’ equivalent of a boiler room sales operation, hounding investors with potentially false information about a company. Just hit the delete key.”

Unfortunately, people are always looking for a deal or an opportunity to get rich quick, and the promise of inside information about a company’s technology, innovative new products, or some tantalizing business condition that makes the stock ‘irresistible’ can prove to be too much. It can be difficult to resist clicking that link and purchasing the stock, especially if, as is often the case, the stock’s a penny stock that doesn’t represent a huge cash layout. But it’s all smoke and mirrors, and often the only one who really benefits from the scheme is the spammer, who’s going to make a tidy little profit if he bought thousands of shares at pennies on the dollar.

As stated earlier, regardless of whether the information provided to spam recipients is valid or not, insider trading is illegal, and the US bodies that control and regulate stock trading are having none of it. in late May, NASDAQ reported that the first subpoenas were issued in a pump and dump scam involving several companies. Select Penny Stocks, Preferred Penny Stocks and Penny Stock Heroes were the newsletters identified as promoting a scheme to pump and dump stock, and the subjects of those schemes were also identified as litigation targets, including Xumanii, one of the companies that was being promoted as a golden opportunity.

NASDAQ reports that George Sharp, the man who filed this action in San Diego Superior Court, warns that these schemes are almost never legitimate:

“[he] advises investors in Xumanii, that every Awesome Penny Stock Ponzi-scheme style promotion, has left a trail of those whom have lost almost their entire investment, totaling hundreds of millions of dollars in losses, including those on past promotions conducted on fellow defendants,” and several companies are listed. “Several hundred of these victims have written emails of gratitude to Mr. Sharp, since he first announced this litigation.”

There’s an odd twist to the story, however. According to MarketWatch.com, a counter suit has been filed against Mr. Sharp.

The suit, filed by “Waleed Ashari, a private citizen and private shareholder of Xumanii(TM) stocks (otcqb:XUII),” states that “Sharp owns and/or otherwise controls the online website www.pumpsanddumps.com, which purports to maintain a so-called “Pumps and Dumps Watch List” on which Sharp claims to identify publicly traded companies engaging in the practice of “pumping and dumping” of penny stocks.”

It’s a little confusing, since it seems that all Mr. Sharp is trying to accomplish is to help people who might otherwise be swindled. Furthermore, NASDAQ’s report offers some interesting if not telling stats about Xumanii:

“In the course of the promotion, startup Xumanii, a one-man operation purportedly headquartered in the Cayman Islands with total assets reported to be $80,000 and liabilities of almost a million dollars, claims to have established business relationships with a variety of performers and infers endorsements from megastars. By the company’s own admission, none of these relationships will add revenue to the company’s bottom line.”

This one is shaping up to be an interesting drama…

Written by Malcolm James

2 Comments

  1. Michael · June 29, 2013

    This is nice. SEC has taken a more proactive stance about it by letting the investors know more about what pump and dump is, how dangerous it is, and what they could do about it. Now it’s up to those It-centric agencies to do the rest of the steps: put a stop to it by apprehending the culprits.

  2. Hannah Grace · June 30, 2013

    Pump and dump spam is something that I have always been wary about. I work in the tradings industry and I’ve experienced being spammed. It’s not a pleasant memory. There are a lot of things to consider, the foremost of which, of course, are your personal information – all the data that can be compromised. And this is all in return for something that promises to help you get rich in a matter of days. It is a good thing that I am wiser now and know how to identify a scam – even by just looking at the email’s subject!

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