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Stock Scams

Introduction

Stock scams are now becoming an increasing problem these days. Sometimes called 'investment schemes' on-line, criminals use these to try to manipulate securities prices on the market for their own personal gains.

There are two main ways that these schemes operate with the main one being the:

Pump-and-dump Schemes

The aim of this scheme is to provide false and/or fraudulent information h the purpose of causing a dramatic price increase in thinly traded stocks or stocks of shell companies (the "pump"). As soon as the price reaches a certain level, criminals immediately sell off their holdings of those stocks (the "dump"). As a result they realize substantial profits before the stock price falls back to its usual (and appropriately) low level. Any buyers of the stock who are unaware of the fraud become victims once the price falls and by the time they realise what's happened it's far too late to sell their holdings.

The investors are therefore scammed and lose a significant portion of their money. Also, even if the price does subsequently increase, these stocks are not heavily traded and the shareholder may have to hold on to the stocks for a far longer period of time than originally intended.

The information for this cam is generally disseminated through chat rooms, forums, internet boards, or via spam email such as the one given below:

Scam email starts:

From: kacj@somtel.com
Subject: If the score is a 1, you automatically hit the target.
Date: 10 May 2007 01:45:17 BDT
To: d7@hmail.org.uk

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Scam email ends

This scam email is very easy to spot once you know what to look for in that the information about the stocks is always provided as an image. In addition, there is padding text to attempt to fool spam filters that this is a genuine email. Thoug the latest filters will catch this type of email.

The second type of scam is the:

Short-selling or 'Scalping' Scheme

Again this type of scam is based around disseminating false information through chat rooms, forums, internet boards, or via spam email. This time warnings about a company are issued with the aim of causing a precipitous fall in the target company's stock price. Once the price is driven down to a pre-determined low level the criminals begin to buy as many shares or options in the stock as they can. Then they reverse the false information or they simply wait for the false information to be disproved by the media or the company itself. When this happens the share price jumps back to its original level the criminals can sell the stock at a huge profit.