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Pump and Dump
August 6th, 2007
I'm going to assume you know what is meant by the phase, "Pump and Dump" If you don't, you can learn about it here:
http://en.wikipedia.org/wiki/Pump_and_dump
I am also going to assume you know how to protect yourself from this unethical practice. If you don't, here are some tips:
1. Don't invest in stocks you hear about in message boards, e-mail spam, unsolicited faxes, or free online websites.
OK, so there's only one tip.
Wikipedia reports that 15% of the e-mail spam messages you get are 'pump and dump' stock scams. A survey of 75,000 unsolicited emails sent between January 2004 and July 2005 concluded that spammers could make a return of 6% by using this method, while recipients who act on the spam message typically lose 5% of their investment within two days.
Thankfully, this dishonest practice has been dramatically curtailed in recent years, thanks to S.E.C. crackdowns, increased investor awareness, and spam-blocking technology.
Regulatory bodies have actually come up with some pretty inventive ways to further combat this issue - for example, the subject company of an e-mail spam may face a cease-trade order from the stock exchange for five days. This is not to punish the underlying company, but rather to prevent the pump and dump from working for the crooks.
You may ask why there hasn't been more success catching the culprits, putting them in jail, and stopping the practice altogether. Well, in North America there has been excellent progress, and pump and dump originating from the U.S.A. is now almost zero.
The problem arises when the pump and dumpers are located overseas, where it is much harder to locate the source, and often impossible to do anything about it once you find them.
I have faith that this will change in the coming years. Until then, you may have to delete a lot of junk mail.
While focused by necessity on lower priced stocks, pump and dump is not a 'penny stock problem' in my opinion. It is simply another form of crime. Many cities have high crime areas, but does that mean the cities in question are high crime?
Similarly, pump and dump practices are dishonest and risky for investors, but that does not mean penny stock investing is dishonest and risky.
In fact, good penny stock investors are completely immune to pump and dump, because they would never be duped by such an obvious scam.
Even more so, subscribers to www.PeterLeeds.com benefit by only getting involved with fundamentally strong, well-run companies with tremendous upside, which are simply trading for pennies because they are overlooked or undiscovered.
Investors who want to start benefiting from penny stocks can learn all about how to trade these shares, and protect themselves from the easily avoidable pitfalls, by visiting my free, online book at www.PennyStocks.org.
As the Penny Stock Professional, I make it my top priority to bring ethics and honesty back into a wonderful market niche that has gotten a bad name from a few bad apples.
One of the ways I do this is with my 100% Unbiased Guarantee. We do not take any payments, bribes, or favors from the companies we profile. My employees and I do not trade in the stocks we feature. We have no hidden motivations in any way, shape, or form.
Many penny stocks are America's next great companies, that are just getting started, or are undiscovered. Buying shares in such companies early on can be very lucrative. You just need to know which ones to invest in, and that is what we do through the penny stock service at www.PeterLeeds.com.