Wall Street Wolves Still Stalking Prey
Today’s penny stock “pump and dump” schemes may not look like the “boiler room” operations memorialized in the 2013 film “The Wolf of Wall Street.”
Pump and dump schemes are back with a vengeance. Mass e-mails and phone internet press releases have replaced cold calls, but slick con artists continue to pump up and then dump shares of lightly-traded penny stocks just as Jordan Belfort (and thousands of others) did in the 1980s and 1990s.
In a recent Wall Street Journal article cybersecurity firm, Trustwave stated that over 7% of e-mail spam involved a stock promotion. Just two years earlier that figure was just 1%. Last year a Canadian con man, Philip Kueber used Twitter to promote six-cent per share Cynk Technology to a high of almost $22 per share.
The Securities and Exchange Commission has suspended trading on about 1,800 suspiciously trading stocks since 2012. In the previous seven years, the halted trading on only 1,300.
In the past month, two Israelis and an American who hacked into J.P. Morgan and Dow Jones databases to obtain names of likely marks for their pump and dump scheme were indicted by the U.S. Justice Department. The federal prosecutor called the case, involving the sale of an alleged mining firm, Mustang Alliances “securities fraud on hyper-steroids.”
A week later the former CEO of Jammin Java, the coffee firm founded by Bob Marley’s son was charged with fraudulently pumping up the firm’s penny stock by more than 3,000% to pocket $78 million selling his (and his family’s) shares into the excitement he created.
Penny stock scams have cost participants many billions of dollars, and yet there always seem to be plenty of people willing to suspend disbelief for a slick sales pitch. Even those previously burned seem unable to resist the lure of a future hot tip.
One man who purchased Mustang Alliances stock told The Wall Street Journal that even after losing 80% of his “investment,” he continued betting on penny stocks stating “Everyone wants to put in a little money and walk away with a whole lot more… It’s the American Dream.”
A more appropriate name might be the “Universal Delusion.” Better yet, let’s call “investing” in any individual stock what is really is: gambling! There are no secret “hot” stocks. There is no legal insider information. The market knows more about every single publicly traded stock than you, or any stock salesperson could ever know.
Hot get rich quick tips are much more likely to do exactly the opposite: make you broke briskly.
