Financial scams are among us since the dawn of time, but with the rise of the Internet, the “pump – and – dump” scheme became so efficient, it still makes thousands of victims annually, if not millions. One recent such pump – and – dump penny stock is extensively described by Timothy Sykes, the young financial mastermind penny stock fraud “detective.” Nine people managed to scam investors from around 35 countries, for a profit of over $100 million. Luckily, these criminals got caught, but many frauds are still at large, having the time of their lives with their victims’ life savings.
What is a Pump – and – Dump Penny Stock Scheme?
The scammer buys very cheap penny stocks and then inflates their price, as he advertises the stock as being the key-feature of a unique business quick enrichment opportunity. It’s quite similar with the infamous Nigerian letters, but now they advertise “hot”, “once in a lifetime”, “inside information – based” financial opportunity through thousand and thousand of e-mails, press releases, articles over the Internet and so on. How do they skip your spam filters? Oh, unfortunately technology can be used for both good and evil and their methods are quite simple. Other more sophisticated methods involve computer – virus technology, bots and some smart college students even managed to hack into people investment accounts. If the scammer gathered enough investors and the stock price reached a satisfying level, the scammers sells his stock for a fat figure, leaving the investors with only wind blowing through their pockets.
How to avoid a Pump – and – Dump Scheme?
First things first: trust no one. No matter how attractive the financial opportunity you just received by mail from a stranger presents itself, it’s better to be safe than sorry. Don’t fall for big numbers, impossible promises, a money back guarantee or a plan you don’t understand anything of.
If you’re a beginner in the market and the stock investments, what you need to do is learn the mechanics. You should be able to read a budget and a cash flow, to understand a financial balance or to make educated guesses upon the stock market based on previous experiences.
Check and re-check every information available on the company attached to the penny stock investment that was proposed to you and trust half the information, as professional cons go to great lengths to make everything look legit, from releasing press statements, to writing articles, lie about a company’s status on the market, bribe brokers, call centers or PR firms.
Don’t invest in things that sound futuristic, brand new, conceptual or even high-tech. The more unheard-of is a product or a company’s name, the higher is the probability to be the victim of a scam. If you don’t find legit information, don’t invest.
Learn from the starters what not to invest in. It’s not just a product or a new emerging business field you shouldn’t trust, but you also should be reluctant to invest in stock which is not traded on the major, reliable exchanges or small companies with annual revenue under $10 million.
What are other Common Penny Stocks Schemes?
You might bump into gold penny stocks or oil penny stocks from time to time. You might find legit business in these fields, but only if you work hard on your homework and trust the source. The gold and oil rush seem to be very attractive, given the price of gold and the present economical crisis, but be careful before wishing to become the next J.R. Ewing and don’t trust those who promise that to you!