E-Mail Stock Tips (Pump-and-Dump Scams)

One of the major changes made possible by the Internet is the number of people who invest in and trade stocks. It seems that just about everybody we know has some investments in stocks, whereas 20 years ago it was something that only wealthy people did. The reason for the boom in investing is twofold. First, the Internet made it easy for people to invest. No calls or visits to a brokerage, just point and click. Second, at the same time that most people received such online access to investing, the stock market hit an unprecedented period of growth (the so-called "bubble" in the late 1990s).

So far, this is all good. The problem with the situation though is that a lot of people out there have no idea what they are doing when it comes to investing. This creates a great opportunity for scammers to take advantage of people who invest without researching the stocks they are purchasing.

The scam involves what is known as a "pump and dump." The bad guys start by throwing a little money into a stock. Then they "pump up" a relatively worthless stock by hyping it up on chat boards or in this case by sending out millions of e-mails. This creates a buzz about the stock, and more folks who do not want to miss out on such an "opportunity" start buying. It looks like the stock is getting hot, which drives the price up. This attracts new investors whose investments also temporarily drive the stock price up again, and so on. At this point, the scammers sell all their shares for a nice profit. Usually within days, the price comes crashing down because there was little or no value in the company's stock to begin with.

This scam is surprisingly effective using e-mail. One of the tactics used quite a bit is the "accidental" e-mail, where it is made to seem like a hot stock tip was meant for someone else. Usually there is a hint of insider information that the stock is about to take off.

Please heed this advice: If you invest in stocks based solely on an anonymous tip, whether it comes via e-mail or is overheard in a bathroom stall or on a train, you are not an investor, you are a gambler. And not a very good one either.

If you do want to invest and are looking for information on a prospective stock, either consult reputable professionals at the brokerage of your choice or go to a site such as the following:

http://www.sec.gov/edgar.shtml

And, get good, solid information. If you want to gamble, go to Vegas.