Earlier this week, Andrei Tyurin, a Russian hacker was sentenced in federal court to twelve years in prison on charges of wire fraud, bank fraud and conspiracy to commit computer hacking. The charges stemmed from a number of large data breaches done by Tyurin including, most notably the 2014 data breach of JP Morgan Chase customers in which Tyurin obtained the names, phone numbers and email addresses of 83 million of JP Morgan Chase’s customers. Turin’s cohorts then used this information to contact these people to tout penny stocks in a classic pump and dump scam. Penny stocks are low-priced, thinly traded stocks that are often used as the tool for scammers to take advantage of unwary investors. Because they are so thinly traded, scammers are able to manipulate the prices so that they temporarily are able to artificially inflate the price of the stock and then sell shares the scammers had purchased at the stocks’ true low values thereby achieving a huge profit. Scammers manipulate the stock market through telephone calls, emails, chat rooms, social media and news releases touting the stock as a great investment. Often they purport to have inside information about a huge increase in the value of the stock that is about to occur. Sometimes, the victims of this communications barrage receive emails that appear to have inside information indicating the stock is about to sharply rise. These communications lure unsuspecting investors into buying the stock and thereby for a short period raise the value of the stock. The scammers then sell their stock at the manipulated high price. When the truth becomes known, the value of the stock shares plummet and the investors are left with tremendous losses. This scam is called “pump and dump.”
Investing is always risky and investing in penny stocks is particularly risky. Any investment is only as good as the information upon which the investment is made. Never make an investment without reliable information gleaned from legitimate, reliable sources. Always be skeptical of purported insider information which is not only unreliable, but also can be illegal to trade upon.
Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository. This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her. You can also check with your own state’s securities regulation office for similar information. Many investment advisers will not be required to register with the SEC, but are required to register with your individual state’s securities regulators. You can find your state’s agency by going to the website of the North American Securities Administrators Association. https://www.nasaa.org/investor-education/how-to-check-your-broker-or-investment-adviser/ Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators. You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular investment adviser. https://www.finra.org/investors/protect-your-money/ask-and-check
It is also important to remember that you should never invest in something that you do not completely understand. This was a mistake that many of Bernie Madoff’s victims made.You also may want to check out the SEC’s investor education website at www.investor.gov. Scammers can be very convincing and it may sound like there is a great opportunity for someone to make some money, but you must be careful that the person making money is not the scam artist taking yours. Additionally, investing with someone merely because you trust them because you have heard them on the radio or television is dangerous. Having the same person advise the investment and control the investment is a common thread among Ponzi schemers because it enables them to falsify documents to make the investment look profitable. Generally, for additional security it is desirable to have a separate broker-dealer act as custodian for investments chosen by an investment adviser.
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