Pump and dump scams have been with us for hundreds of years, however recently they have evolved to keep pace with today’s world of finance. A Pump and dump scheme is most often done with low priced stocks referred to as “penny stocks.” The scammers buy low priced stocks and then artificially inflate the price of the stocks by using text messages, faxes, Internet chat rooms and other means of communication posing as people with inside information that 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 and reverts back to its true value.
Recently the Securities and Exchange Commission (SEC) sued five people who allegedly were operating a call center in Medellin, Colombia that called people in the United States and used high pressure sales tactics and misrepresentations to lure their victims into buying the penny stocks that the scammers utilized in a pump and dump scam that netted them more than 58 million dollars.
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. It is highly unlikely that a cold caller about whom you know nothing is going to be providing you with a great investment opportunity.
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. You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular investment adviser.
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.
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