Pump and Dump Alerts – May 24, 2011
It seems like every day my e-mail fills with investment opportunities of a lifetime. There are promises of guaranteed riches
all I have to do is buy some unknown companys shares that are ready to launch to the moon!
But really, how do these pitchmen have such incredible vision? Do they have an insider feeding them secrets?
The answer is no…
Theres an unregulated market for companies to sell their stock. Its called the pink sheets, one of the over the counter markets (OTC). Here, companies are able to sell shares without meeting SEC requirements.
In fact, in most cases they dont have to provide any financial information at all. Essentially, it could be a guy working out of his garage without an actual company producing nothing!
This guy could just be looking to abduct money from unsuspecting investors.
Heres how it works
These garage entrepreneurs begin the hype marketing immediately. Their goal is to bring people in on the secret the company has and how their product is so revolutionary.
Investment relations companies are hired to get the word out. They advertise on the internet and by snail-mail. Its plastered and pushed, hitting the ultimate target the get rich quick crowd.
These story spinners are self-proclaimed expert analysts. Theyre supposedly pros at analyzing company financials and business plans.
The majority of these companies being pitched dont have any sales whatsoever. We have a company doing nothing, marketed by frauds without any financial or analytical experience. No credentials whatsoever.
But this wont stop them and the companies helping to push their shares.
These amateurs create a marketing tornado from thin air. They fake up an incredible product, fictitious sales projections, and potential rivaling Google all born from catchy, creative writing.
Whats more, the marketing moguls earn big bucks creating the rouse. Sometimes in cash, other times in stock they can dump on unsuspecting investors.
Any way you slice it, its just garbage!
This scam is known as Pump and Dump.
You see, cooking up companies is a great way for everyone involved to make money except you! Normally, company shares are very thinly traded, if at all. By putting all the pieces of the scam in place, a market is instantly born for the company.
Now the action can begin
The marketers have done their job, drumming up interest from thousands of investors. Shares can now be dumped on the new buyers.
As the excitement builds, new investors gawk at the spiking prices everyone wants in before its too late!
But theres a problem.
In a very short time, the rush slows to a drip. Volume plummets. And the once rocketing shares plunge back to earth. The market dries up and the buyers are gone its over.
And the result?
The guy in the garage and the investor relation firms make mountains of cash. But most investors lose all their money.
So how can they get away with this?
This may seem like blatant fraud, but it mostly flies under the radar. As long as they disclose what they’re doing, it’s actually legal!
Right now the SEC doesnt investigate these scams. That’s because these companies are unregulated. They only warn investors about the deception.
Truthfully, this is unscrupulous. Thousands of investors lose millions of dollars each year investing in garbage. These ploys are rampant with new ones hitting email inboxes every day.
Fortunately, theres a better way
Investing in small cap companies is a great way to make money. Plain and simple.
Consider looking for penny stocks with a track record of revenue growth. Youll find many are best in class in their sector deserving of your investment dollars. And all of them have business plans and financials backing them up.
Also, I encourage everyone to research the companies you invest in the SEC website is an invaluable resource.
Investing is all about balancing risk and reward. Be sure you stay on the right side of the equation never gamble your money on penny stocks, who arent reporting to the SEC.
You will lose your money!
In fact, since 1926, small cap stocks have significantly outperformed every other major asset class including blue chip stocks, gold, and even real estate.
Until next time,
Brian Walker
Category: Pump & Dump Alerts
