The Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (Finra) have issued a warning to investors that they should avoid emails with pump and dump penny stock schemes. A report by the Internet security firm McAfee shows that pump and dump penny stock emails (or spams) are on the rise.
How to Identify Pump and Dump Penny Stocks
Fraudsters use large scale emails to lure investors into their scams by promising higher returns. Most of these emails boast a company’s stock through misleading and false statements. A perfect example of pump and dump penny stock is Ziyang Ceramics Corp (OTCMKTS:ZYCI) which we discovered last week. The company’s promoters joined hands with an investor relations firm. They promoted the stock heavily, promising more than 300 percent in gains. Investors began to buy the stock and share prices more than doubled within a few weeks. Then promoters dumped their shares at increased prices and disappeared, leaving innocent investors with worthless stock.
The SEC urges investors to be wary of unsolicited investment opportunities from a stranger. Apart from emails, fraudsters can also make false claims on social media, bulletin boards, online forums and chat room pages. Ziyang Ceramics Corp (OTCMKTS:ZYCI) was promoted through investment reports and press releases. In most pump and dump cases, promoters claim to have “inside” information about a development that will increase share prices manifold.
Other fraudsters use a combination of stock market and economic data to make it appear realistic. Others claim that the company will bring a new technology, or emerging market trends to make huge profits. Catchy subject lines and short messages will quickly arouse your interest into buying a stock.
The Securities and Exchange Commission recently halted trading of as many as 61 microcap stocks to prevent pump and dump frauds. Regulators have ramped up their efforts to crack down on investing fraud by mostly microcap companies.