An investigation into the profusion of e-mail stock tips
The gullible keep coming and the unscrupulous keep coming after them, and all the more so since the internet has brought cyber-credulity to such a peak of perfection. After all these years of Nigerian e-mails, one would have thought they’d run out of suckers. If only this were true.
If you can send out 30 mn to 40 mn e-mails, then statistically you will snare enough marks to make it worthwhile. The latest version is spam cooked up in cyber boiler-rooms. For months I have been getting dozens of e-mails with random text hidden in the background to fool spam filters and an embedded file extolling the virtues of sundry penny stocks. The motivation is clear, at least to me: to pump and dump stocks. With penny stocks and their (usually deservedly) low trading volumes, it only takes a few dozen suckers pulling their savings out from under the mattress to cause significant price increases – for a while.
I tried tracking a few of these hyped stocks, and the prices did indeed go up, albeit temporarily. Gaming Transactions, recently one the most intensely touted stocks in my junk mail folder, has risen by no less than 500 percent in the last week or so. Its CEO, whose principles we hope are better than his spelling, posted an announcement saying that ‘there have been reports that a number of people have received e-mails promoting the company. Gaming Transactions Inc is a Delaware-registered public company that adheres to a set of high principals [sic] and does not send out fax or e-mail solicitations.’ Who are we to doubt the word of a Delawareregistered company with a Vancouver head office, a London subsidiary and gambling servers in Costa Rica and Slovakia?
When I checked some of the other touted stocks, there was often a suspicious statistical connection between spam and purported ‘investor relations’ consultants who write the glowing predictive paragraphs being circulated and who admit that they’re paid in stock grants. Of course, once again, it would be churlish and suspicious to suspect that a ‘consultant’ would possibly want to pump and dump a substantial holding of stock that they got for free.
John Reed Stark, chief of the SEC’s office of internet enforcement, points out that even he gets the scam-spam in his own office mail. More hearteningly, over 6,000 people a day report e-mail scams to the SEC, and Stark says he has prosecuted dozens of perpetrators.
Stark, an expert on the net and securities law, warns rookie IROs at start-ups to tread carefully when approached by shady stock promoters claiming to be IR consultants. ‘Even if they do not spam directly, they may subcontracted to others who do,’ he cautions, adding that if a company finds itself being touted in this way, it’s in its own interests to contact the SEC immediately.
The founder of www.spamnation.info, a genuine philanthropist who tracks the cyber boiler-rooms in the ‘stocks’ section of his site, offers at least one heartening thought: many of those who act on the cyber-spam tips are day traders who know that a scam is afoot and think they can surf the wave and pull out just in time. Lots of gurgling babies testify to the fact that it is not always easy to pull out before the climax, and figures suggest that this day-trading version of coitus interruptus is equally unreliable.