Stock market fraud: Pump and dump

Discussion in 'General Scam formats' started by Gentle Giant, Aug 31, 2007.

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  1. Gentle Giant

    Gentle Giant Giant Admin for a Day Staff Member

    Pump and dump is one form of stock market manipulation which has been around for a long time. The internet has made it easier for people to do this.

    Pump and dump consists of 2 parts as you might guess. The first is the “pump†in which someone with stocks to sell uses false statements to either sell the stock or to overinflate the value of the stock, often by making you think it’s a “hot†stock. The “dump†part comes when the stock seller then sells his/her shares, the price drops, and the buyer may be left with worthless paper.

    Stocks that are sold in this way are often known as “penny stocks†because they do not trade on major stock exchanges like the NYSE, LSE, TSE, NASDAQ, etc. They may trade “over-the-counter†or OTC. In the old days, whenever that was, they were actually sold on street corners. With the advent of the telephone, “cold-calling†stock sales became possible and telemarketing of stock became possible. Yes, you guessed it, the internet has made this even easier due to the mass-mailing potential of the internet,

    Companies that sell stocks and scam artists (of course) will send out emails in large numbers trying to talk up their stock. They may claim to have “insider†information that the stock is going to go sky high. (This is illegal anyway and is known as insider trading. People do, sometimes, go to prison for that). Stock traders and scam artists can talk up the stock on bulletin boards or chat rooms. As people start to buy the stock the value goes up. As long as you sell before the bubble bursts you’re okay with this but the problem is that usually you don’t know when the bubble is going to burst. In the end, the investor is left with a stock which is worth much less that what they paid for their initial shares or, even worse, a piece of worthless paper.

    Recently, some of the stocks that are being promoted are located overseas, often in a country where there could be language barriers or even information barriers. China is one example. A company may have no idea that someone in another country is promoting their company’s stock and the market regulators may not have a way to control such activities.

    The best rule of thumb is the old adage: if it looks to good to be true then it probably is. If you get one of those stock promoting spam mails, your best bet is always to hit “deleteâ€.

    For more on pump and dump and other stock market fraud, you can look here at Wikipedia.
     
  2. De Master Yoda

    De Master Yoda Administrator Staff Member

    USA: Pump and Dump scheme

    edit <<<"pump and dump"involves artificially inflating the price of a stock through false and misleading statements">>>>

    $3 Million Frozen in Cyber-Fraud Case
    Hackers Operated Penny-Stock 'Pump-and-Dump' Scheme, SEC Alledges

    By Ellen Nakashima
    Washington Post Staff Writer

    A federal judge has frozen $3 million belonging to an Eastern European cyber-ring in an online stock manipulation case involving seven major brokerages, the largest asset freeze to date in such cases.

    The ring's members lived in Russia, Latvia, Lithuania and the British Virgin Islands, and netted at least $733,000 from December 2005 to December 2006 in a complex scheme that combined hacking with traditional "pump-and-dump" market manipulation, the Securities and Exchange Commission alleged in a complaint filed Tuesday in U.S. District Court in Washington.

    Using a technique growing in popularity with cyber-criminals, the hackers cloaked their electronic footprints by hijacking the Internet protocol addresses of unrelated third parties across the United States, the SEC said yesterday.

    The ring's money is in 75 accounts kept by a Raleigh, N.C., securities broker, Pinnacle Capital Markets, in the name of a Latvian bank, JSC Parex Bank, the SEC said. The $3 million represents the profit the hackers allegedly made and the brokerages' loss to reimburse clients.

    The freeze order, which District Judge Ricardo M. Urbina issued Tuesday evening, is the first step in a legal process to seek recovery of the money and impose civil penalties.

    This is the third online financial fraud case the SEC's enforcement division has brought since December. The first involved a Russian man who allegedly stole $354,000. In the second, a Florida man allegedly took $83,000 in a similar scheme and wired it to a bank account in Latvia.

    Since 2005, the SEC has been investigating breaches into dozens of online trading accounts at multiple U.S. brokers. Companies have reported losing at least $22 million because of online account fraud.

    What the cases have in common is the mode of operation. First, the intruders buy shares of thinly traded companies, sometimes called penny stocks, using their own online accounts. Next, they use the Internet to gain unauthorized access to online investors' user names and passwords. With that personal information, the hackers break into the victims' online accounts, sell existing stocks and use the proceeds buy shares of the penny stocks held in their own accounts.

    The purchases create the appearance of trading activity and pump up the stock price. Then, at the height of the pump, the hackers sell their stocks and turn a profit.

    The hackers often steal investors' account information by using keystroke-logging programs, a type of spyware that enables one computer user to remotely monitor the keystroke activity of another, Thomas P. Conroy, an SEC market surveillance specialist, said in a declaration in support of the agency's case.

    "The modern intrusion manipulation scheme is an exponentially growing problem that has resulted in large losses to investors and the brokerage industry," Conroy said.

    The case began in December 2005 when NASD, the securities industry's regulator, notified the SEC of an intrusion into a Merrill Lynch customer account. The SEC inquiry spread to almost 40 U.S. customer accounts with the brokerages E-Trade Securities, Scottrade, TD Ameritrade, Vanguard Brokerage Services, Fidelity Investments, and Charles Schwab. It involved at least 15 stocks traded on the Nasdaq Stock Market, the SEC said.

    The SEC expects to identify the 20 or so ring members through "expedited discovery," officials said.

    The case was brought in Washington in part because it is the residence of one of the victims, whose account lost $23,500. All the victims were reimbursed by their brokerages, SEC officials said.
    __________________
    *What the mind can conceive and believe, it can achieve.*
     
  3. De Master Yoda

    De Master Yoda Administrator Staff Member

    US Securities and Exchange Commission.

    From: US Securities and Exchange Commission.

    "Pump and dump" schemes, also known as "hype and dump manipulation," involve the touting of a company's stock (typically microcap companies) through false and misleading statements to the marketplace. After pumping the stock, fraudsters make huge profits by selling their cheap stock into the market.

    Pump and dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a telemarketer will call using the same sort of pitch. Often the promoters will claim to have "inside" information about an impending development or to use an "infallible" combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy they create. Once these fraudsters "dump" their shares and stop hyping the stock, the price typically falls, and investors lose their money.

    For more information about microcap fraud, please read our publication, Microcap Stock: A Guide for Investors.

    http://www.sec.gov/answers/pumpdump.htm

    We have provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.
     
  4. De Master Yoda

    De Master Yoda Administrator Staff Member

    U.S. Securities and Exchange Commission

    Pump&Dump.con:
    Tips for Avoiding Stock Scams
    on the Internet

    One of the most common Internet frauds involves the classic "pump and dump" scheme. Here's how it works: A company's web site may feature a glowing press release about its financial health or some new product or innovation. Newsletters that purport to offer unbiased recommendations may suddenly tout the company as the latest "hot" stock. Messages in chat rooms and bulletin board postings may urge you to buy the stock quickly or to sell before the price goes down. Or you may even hear the company mentioned by a radio or TV analyst.

    Unwitting investors then purchase the stock in droves, creating high demand and pumping up the price. But when the fraudsters behind the scheme sell their shares at the peak and stop hyping the stock, the price plummets, and investors lose their money.

    Fraudsters frequently use this ploy with small, thinly traded companies because it's easier to manipulate a stock when there's little or no information available about the company. To steer clear of potential scams, always investigate before you invest:

    *
    Consider the Source
    When you see an offer on the Internet, assume it is a scam, until you can prove through your own research that it is legitimate. And remember that the people touting the stock may well be insiders of the company or paid promoters who stand to profit handsomely if you trade.

    *
    Find Out Where the Stock Trades
    Many of the smallest and most thinly traded stocks cannot meet the listing requirements of the Nasdaq Stock Market or a national exchange, such as the New York Stock Exchange. Instead they trade in the "over-the-counter" market and are quoted on OTC systems, such as the OTC Bulletin Board or the Pink Sheets. Stocks that trade in the OTC market are generally among the most risky and most susceptible to manipulation.

    *
    Independently Verify Claims
    It's easy for a company or its promoters to make grandiose claims about new product developments, lucrative contracts, or the company's financial health. But before you invest, make sure you've independently verified those claims.

    *
    Research the Opportunity
    Always ask for — and carefully read — the prospectus or current financial statements. Check the SEC's EDGAR database to see whether the investment is registered. Some smaller companies don't have to register their securities offerings with the SEC, so always check with your state securities regulator, too.

    *
    Watch Out for High-Pressure Pitches
    Beware of promoters who pressure you to buy before you have a chance to think about and fully investigate the so-called "opportunity." Don't fall for the line that you'll lose out on a "once-in-a-lifetime" chance to make big money if you don't act quickly.

    *
    Always Be Skeptical
    Whenever someone you don't know offers you a hot stock tip, ask yourself: Why me? Why is this stranger giving me this tip? How might he or she benefit if I trade?

    For more information on how to use the Internet to invest wisely and avoid fraud, be sure to visit our Internet and Online Trading web page. There you'll find a vast array of tips, including Internet Fraud: How to Avoid Internet Investment Scams.

    http://www.sec.gov/investor/pubs/pump.htm

    We have provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.
     
  5. De Master Yoda

    De Master Yoda Administrator Staff Member

    Trojans: pump and dump

    Banker Trojans on the rise; pump-and-dump schemes hit Europe
    US online security services firm Panda Software says 20% of all Trojans it detected in 2006 were designed to steal financial information, and the malware is evolving into more dangerous forms.

    The rapid evolution of banker Trojans is largely due to the use of additional security measures by financial institutions, such as the virtual keyboards that are used to prevent traditional keyloggers recording passwords.

    But Panda says fraudsters are stepping up efforts to counter-act security measures. Panda says last year it detected Banbra.DCY, a banker Trojan designed to take video shots in order to see exactly which characters customers enter on a virtual keyboard.

    Trojans are also increasingly used for pharming, which involves tampering with the the domain name system used to direct users to spoof bankingWeb pages designed to capture the data entered.

    "Banker Trojans are currently one of the greatest threats on the Internet and attacks using this type of malicious code can have devastating effects on users' finances," says Luis Corrons, technical director of PandaLabs. "These Trojans are created specifically so they can be installed and operate without attracting attention."

    Earlier this week IT security firm Sophos warned European investors of a pump-and-dump stock spam campaign designed to manipulate the share price of a company listed on the German stock exchange.

    The spam e-mail encouraged German investors to buy shares in US-based energy company Stonebridge Resources Exploration, which is listed on the Frankfurt Stock Exchange. Since spotting the e-mail, Sophos says it has monitored activity in trading on the stock which increased significantly.

    "This is the first time we have seen a widespread spam campaign trying to influence a stock market based outside of the USA. If spammers are finding this stock's price easy to manipulate it could leave German language computer users seriously out of pocket," says Graham Cluley, senior technology consultant for Sophos.

    Earlier this month US prosecutors filed federal charges against three Indian nationals who allegedly hijacked online brokerage accounts in the US in order to conduct pump and dump scams.

    The SEC also obtained an emergency court order freezing $3 million contained in an online trading account held by a Latvia-based bank that has allegedly been used to run a market manipulation scheme.

    Furthermore, the regulator has suspended trading in 35 over-the-counter penny stocks that have been the subject of repeated spam e-mail campaigns.
     
    Last edited by a moderator: Sep 1, 2007
  6. Miyuki

    Miyuki Administratrix Staff Member

    An example would probably be this piece of spam in one of my mail boxes today:
     
  7. Garreg Ddu

    Garreg Ddu Gweinyddwr Staff Member

    Another example of spam, this time posted here by a spammer who registered. I am afraid he will not be posting any more like this on this forum ;).

     
  8. Templar

    Templar Super Moderator

    Auto trading sites can lead to loads of woes.

    Try slot machines.
     
  9. stocktrader6080

    stocktrader6080 New Member

    Isn't pump-and-dump what the analysts do every day on CNBC.

    Just a few weeks ago GS paid over $500M for telling people to BUY while they were SELLING or SHORTING.
     
  10. Sphinx

    Sphinx Administrator Staff Member

    You mean Jim Cramer? He's just a guy using too many amphetamines.
     
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