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The Penny Stocks Pump And Dump ProcessBy Nir Dotan A Pump and Dump scheme is a form of fraud that artificially increases the price of a stock by means of false and deceptive positive statements (pump), in order to sell the cheaply purchased stock at a higher price than its original value (dump). Penny stocks are often used by fraudsters in scam operations. This is because the shares are not traded in the major stock markets, and can be acquired inexpensively at pre-pump prices and eventually sold over the counter. Since these stocks are usually quoted in the Pink Sheets (which has zero disclosure requirements to be listed), and Over the Counter Bulletin Board (which has very diminutive disclosure requirements), market research and background checks about the parent companies are very scarce and at times almost impossible. These fraudsters purchase stocks and with the use of misleading positive statements, produce interest in the stocks. These statements are frequently fallacious and have a wide array of ways in order to magnetize potential investors. Some of these methods are supposedly unbiased finance newsletters that endorse the penny stocks as the top share to buy at present. These scammers may also use chat rooms and electronic bulletin boards. Message traffic in chat rooms and electronic bulletin board activity may persuade investors to quickly purchase shares before prices go down. Several fraudsters would even set up company websites for the main purpose of applying the pump and dump scheme. They will use the company website to exhibit the vigorous financial health of the company or a new innovative product that will eventually hype the particular stock, making it a good buy. These encouraging statements can be true to a certain extent or may be absolute lies. Regardless of these possibilities, these statements are intended to create interest in a particular stock. This will eventually deceive the investors on the true value, potential, and performance of the penny stocks in the actual market. Penny stocks fraudsters use of various types of mass media such as television, newsletters, radio, newspaper columns, websites, forums and message boards. They have started to use spam e-mails that endorse the buying of their stocks through deceptive and nearly implausible claims. In addition to these forms of mass media, scammers have established boiler room call center operations that perform cold call telemarketing, which targets the elderly or overseas prospective buyers of their pumped up penny stocks. Because of the deceptive yet promising statements, unsuspecting investors buy a large volume of these penny stocks which eventually pushes up share prices by means of high demand. After this, the scammers would then sell their stocks at pumped up prices, basically dumping these shares at the investors who are unaware of the scheme. Once the fraudsters dump their overvalued shares, they suddenly stop the hyping procedures for the stock, causing the share's price to fall, which eventually ends up with the investors losing their money. After a successful operation on a particular stock, these fraudsters will then move on to other penny stocks and repeat the whole process of pumping and dumping. About the author Nir Dotan is a writer and promoter of Penny Stocks services, and Penny Stocks Preferred source for the latest news and information on the best and brightest Small Cap Stocks. |
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