The Securities and Exchange Commission has been cracking down on boiler rooms like the ones portrayed in The Wolf of Wall Street, but the combination of high risk and a low stock price is still too tempting for many people to resist and scammers are evolving their tactics. Spam email touting penny stocks jumped from less than 1% of unwanted email in 2012 to 16% last year, replacing the hard sale cold calls that pump and dump schemes are best known for, reports Priya Anand for MarketWatch.
Penny stock spam follows a familiar pattern
Like most spam email campaigns, hackers infect computers to create a botnet (since the computer itself isn’t the target, users generally just experience reduced performance) and then sell use of the botnet to the highest bidder. The same network that was sending you advertisements for fake Viagra last year is probably the same one trying to sell you penny stocks this year.
And like other spam emails, the goal isn’t to seem convincing to reasonable people but to appeal to the outsized hopes of the greedy or desperate. Frankly, it’s a little surprising that it has taken this long for the two scams to come together. Penny stock pump-and-dump schemes have made their way onto popular financial news sites, usually through contributors as opposed to staff writers, so spam almost seems like a step back.
SEC also cracking down on pot stocks
The SEC has also been going after the so-called pot stocks in recent months, reports Nathan Vardi at Forbes, halting trading on a number of high-risk companies for manipulative transactions, unlawful distribution of securities, and other serious allegations. GrowLife, one popular pot stock, is 88% off its March highs and a popular index of pot stocks has similarly poor performance. If the SEC is trying to take the wind out of their sales, it seems to be working.
But no matter what measures the SEC takes, it can’t protect people from themselves. Even as some pot stocks have bottomed out, others continue to trade with plenty of volume because the SEC hasn’t yet done anything about them. Tiny market caps and reduced visibility mean that penny stocks will always be risky (even before you start talking about the business models), but in the current environment that’s not going to keep people away.