Beware the Pump and Dump

Cicadas cling to lilly plants in Stoneville, N.C. Photograph by H. Scott Hoffman/News & Record/AP Photo Close

Cicadas cling to lilly plants in Stoneville, N.C. Photograph by H. Scott Hoffman/News & Record/AP Photo

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Cicadas cling to lilly plants in Stoneville, N.C. Photograph by H. Scott Hoffman/News & Record/AP Photo

Pump and dump schemes, like cicadas, pop up from time to time and it appears we're in for another round, according to an alert issued today by the Securities and Exchange Commission and Finra, the self-regulator for the brokerage industry. In a pump and dump, scammers attempt to push up a stock's price by passing out false information to unsuspecting investors. If the stock pops, the schemers immediately sell, leaving you-know-who holding the bag.

"For years, fraudsters have used large-scale e-mail pushes (what most of us call junk e-mail, or spam) to lure potential victims into investment scams. Many of these e-mails tout a company’s stock -- typically small, so-called 'microcap' companies -- through false and misleading statements to the marketplace,'' according to the regulators' investor alert. The release cited the McAfee Threats Report, which noted that worldwide spam doubled during the year's first quarter.

The phony claims may also pop up on Facebook and Twitter along with bulletin boards and chat-room pages. "Investors should always be wary of unsolicited investment offers in the form of an e-mail from a stranger," said Lori Schock, director of the SEC's Office of Investor Education and Advocacy in the press release. "The best response to investment spam is to hit delete."

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