By Leticia B. Santiago
The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) recently issued an alert warning investors not to invest in “pump-and-dump” stock schemes. The alert warned investors to be on the lookout for email spam promoting these “pump-and-dump” stocks. Alert also stated that these scams could be promoted on social media like Facebook and Twitter.
Promoters of “pump-and-dump” schemes often claim to have “inside” information about new developments. Others say they use an “infallible” system that uses a combination of economic and stock market data to pick stocks. Enticing subject lines and short messages offering investors an opportunity to strike it rich are designed to quickly attract interest and lure investors into buying the stock, all with the goal of creating a run-up in price.
The senders of these emails often are trying to create a buying frenzy by sending mass emails, essentially “pumping” the stocks. Then, once there has been a spike in sales, they “dump” their shares by selling them and stop hyping the stock. Then, the price typically falls dramatically and investors lose their money or are left with worthless, or near worthless, stock.
The Executive Vice President of FINRA’s Office of Fraud Detection and Market Intelligence, Cameron Funkhouser, stated that “[s]pam email is the bait used to lure people into making bad investment decisions. No one should ever make an investment based on the advice of an unsolicited email.”
The alert included data from McAfee Threats Reports that confirms that there has been a rise in email-linked to “pump-and-dump” stock schemes.
The Director of the SEC’s Office of Investor Education and Advocacy, Lori Schock, warned that “[i]nvestors should always be wary of unsolicited investment offers in the form of an e-mail from a stranger. The best response to investment spam is to hit delete.”
Accordingly, investors should always be wary of unsolicited investment promotions, whether it is through email or social media.