Friday, July 13, 2007

Be Careful of Investment Scams

Have you ever received mail in your mailbox that tells you that you can get a 300% return on an investment, or hype up a hot sector such as alternative energy, oil? And then, after hyping the sector (and putting down the established companies in the sector), they start to highlight a stock that nobody ever heard of saying it's going to be next big thing. You may get this as "junk" mail in your mailbox, or else a "spam mail" in your email account.

What do you do with this?

Avoid These Investment Scams like the Plague!

How does this scam work? This method is called "pump and dump." An individual or group tries to find an easily manipulated stock. Most often, this stock has very few shares traded, and belongs to the "pink sheets", or bulletin board stocks. According to Wikipedia, these stocks are:

With the exception of a few foreign issuers (mostly represented by American Depositary Receipts, or ADRs), the companies quoted in the Pink Sheets tend to be closely held, extremely small and/or thinly traded. Most do not meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it very difficult for investors to find reliable, unbiased information about those companies.

For these reasons, the SEC sees companies listed on Pink Sheets as "among the most risky investments" and advises potential investors to heavily research the companies in which they plan to invest.

So an individual or a group of individual would choose such a stock. Then while it is low, they would start buying the stock. Then, they would spam you by email, or send newsletters, or find any method to reach as many people (vulnerable or not). Believe it or not, there are people who may respond to the spam by buying the hyped stock. The stock, since it is thinly traded and easily manipulated, starts to rocket. At this time, the Scammers and criminals then sell the stock they were holding and profit.

This is known as the "pump and dump."

Please avoid this scam.

Not only will you save money, but you will discourage criminals and scammers to stop spamming and sending junk mail.

Please inform your family and friends, especially those who are very vulnerable to these scams.

Here's more information from the SEC (Securities and Exchange Commission) regarding these investment scams.

Stay safe out there!

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