Scam of the day – August 8, 2014 – Pump and Dump indictments in New York

Recently, Federal criminal charges were brought against seven people including Abraxas Discala, the former husband of actress Jamie-Lynn Sigler, from the HBO series, “The Sopranos.”  The seven people indicted were charged with running a three hundred million dollar “pump and dump” investment scam that cheated many investors including many elderly people.  In a pump and dump scheme, which is often done with low priced stocks referred to as “penny stocks,” the scammers artificially inflate the price of the stocks by using text messages, faxes, Internet chat rooms and other means of communication posing as inside information indicates that a stock is about to rise.  This prompts victims of the scam to buy the stock and temporarily inflate the value of the stock.  Meanwhile, the scammers sell their stock when the stock price gets bumped up and are long gone when the stock deflates when it reverts back to its true value.  The four companies involved in this particular pump and dump scam, according to U.S. Attorney Loretta Lynch were CodeSmart Holdings, Inc., Cubed, Inc. StarStream Entertainment Inc and Staffing Group Ltd.  The Securities and Exchange Commission also brought civil charges against five of the seven people indicted on the criminal charges.  According to the SEC, the value of the boost in the value of the targeted stocks initially reached three hundred million dollars, but then crashed causing losses to investors in CodeSmart Holdings, Inc alone of fifty million dollars.

TIPS

Remember my motto, “trust me, you can’t trust anyone.”  You should never invest in anything unless you have carefully investigated the investment and understand it fully.  Stock trading based on unverified information you receive in a text message, fax or chat room is extremely risky and unreliable.  In addition, insider trading, which often is the lure in a pump and dump scam is illegal.