Share

In the past many stock holders would receive unsolicited emails, letters, phone-calls or fax messages providing them with some tip about a stock that’s going to skyrocket pretty soon. Every investor loves a genuine stock tip, but in this case the stock tip was completely unsolicited and it came out of nowhere. The scam-artist who provided the tip likely owned shares in the stock and was hoping to create an artificial buying market for the stock so that the price of the stock would go up and make the scam-artist some easy money. Traditionally scam-artists who made use of the pump and dump scam promoted stocks for very small companies called penny stocks. This age-old scam now has a 21st century twist.

Instead of promoting stock for a real company, many scam-artists are now pumping stocks for companies that don’t exist. All a company has to do is fill out a public registration statement so that they can issue stock to people on the open market. Criminals are now making use of shell companies to issue totally worthless stock to people. They will then issue all sorts of fake press releases, phone calls, e-mails and faxes about the company which is allegedly the next Google in terms of investments.

There was recently a major pump and dump scheme going on in Florida. The criminals went around and left voice mails on phones around the country leaving messages that contained insider trading tips that were supposed to be for other people. The victim would then think they found some secret insider information that only the top investment companies knew about, and would then buy the stock and cause its price to increase. Eventually the con-artists got busted and the stock price fell back to about what it should have been at in the first place.

It might seem like common sense to most people, but you should never invest in a company because you receive some hot tip from an unknown source. In fact, you probably should never invest in one single company at once. There’s just too much risk associated with doing so. If the one company you invest in turns out to be the next Enron, you’re out of luck! Invest in quality mutual funds that spread your money across hundreds of companies so that you can make a decent rate of return and be unaffected if one of those companies goes belly-up.