Spammers hit by the SEC

You certainly noticed in the flood of SPAMs that is probably arriving in your mailbox as in mine, that many of them are promoting stock exchange securities -that you usually do not know about. This is generally part of an elaborate (but old) scam known as ‘pump and dump‘. It consists in buying shares of a company (preferably on a small market), then to promote it like hell announcing huge value increases just to make it happen (pump) just to sell your shares to the victims while they rush in (dump).

It works best if you attack a company whose stock is circulating in very small quantities (they are more sensitive to small changes of market opinion). You buy at the lowest possible price over a long period of time; You convince your victims that the stock is undervaled and will go up, so they rush and make the stock climb quickly (most victims then become even more convinced that the information was right). But you are the only one able to profit from it since you are the one selling. Later, the victims are left with value-less shares that nobody wants to buy (and certainly not at the price of the recent transactions). The crooks can make a lot of money out of such a scam taking advantage of the individual victims (they gave their money to the scammers) and of the company (it will probably take a long time before the bad reputation earned by the stock at that moment can be cleared and come back untarnished).

The SEC thinks they found the solution: Recently, for 35 companies stormed by such SPAM campaigns, the SEC simply banned trading. It may not bring the complete solution, but it gives time for information to flow and the potential victims to be informed of what is happening before they go and make fools of themselves. The hope is to force scammers to loose their information advantage, leaving them with stock at their real value instead of an inflated one. Normally, the scam works on a period of one to two weeks (a short period of time that is acceptable for a trading ban).

Parallely, the Feds succeeded in catching people that were running similar scam but using hacked brokers accounts.

Sources: The Register, The Register, .