I HATE scams! I am writing this article to warn people about a fairly new hard to detect version of the classic pump and dump scam that I have noticed insidiously creeping up more and more in forums, newsletters, websites, and emails.
It is my hope that if I bring more attention to it, potential investors will more easily recognize what's really going on.
First, let's quickly review the classic pump and dump perpetrated by financial scam artists.
Someone from the outside or company insiders buy up a large quantity of shares of a penny stock that is essentially worthless.
They then go out and "pump" the stock (or they hire someone else to do this for them).
They hype it in such a way as to create a big buzz and get people interested in buying it.
They target people who are actively looking for penny stocks that could make a dramatic movement over a short period of time (people who want in their heart of hearts to get rich quick).
For example, they target people who subscribe to free penny stock picks and free penny stock advice newsletters.
As people start buying the stock, the price per share skyrockets very quickly.
Usually just before the peak price, the scam artists are then able to "dump" their shares - sell it off quick (because the buying frenzy is still going on) - and make a very sizable ill-gotten profit.
After they dump their shares, the price of the stock tanks of course and many innocent people are left holding worthless shares that they can't sell.
The key to an effective pump and dump scam is how believable the "pump" is.
The scam artists usually spin out a great story and the internet has been dream come true for them.
They use it as a tool to quickly get this hyped up story in front of a very targeted audience who already primed and ready to believe their story because they want to so bad, and in doing so, they create a buying frenzy.
However, the effectiveness of the classic pump and dump where the hype is extremely obvious is being to wane a bit.
Potential investors are becoming a little more wise because there are those of us constantly reminding people to be on the look out for these scams and telling them how to recognize pump and dump scams.
Okay.
So now that we've reviewed the classic pump and dump, let me warn you about the new hard to detect version.
To keep up and keep themselves in plenty of ill-gotten profits, the scam artists have to keep becoming more inventive and creative in their approach to how they hype their worthless stocks.
Instead of using blatant hype to pump a worthless stock, they can instead quietly plant the seeds of a rumor and then watch it grow.
As it grows they can have people in place to make sure the rumor grows in the right direction and others in on their scheme just occasionally go in and fan the flames so to speak.
However, they never get right in your face and practically scream the hype at you as is the case in most of variations of the pump and dumps.
As an example, they may go on a popular forum where many newbies hang out and instead of posting a new message that puts the hype right in the subject line (the more classic way to do things - and then repeat on all the boards), they may make a simple reply to someone else's post in which they plant the seeds of the rumor.
They play it really low key and just mention it in passing.
They may subtly suggest that they obtained this information from some insider source like maybe their cousin who works with the company on website development or some other opening that seems innocent enough.
Someone else on their "team" can then go to another popular board and say, "yeah...
I heard about..
..
blah blah" to fan the flames a bit.
Once the rumor grows and people start buying up the worthless stock based on that rumor, it's hard for anyone to figure out where the information came from originally.
It's also MUCH harder to recognized as a pump and dump - and this is what has made it so effective for the scam artists that unleash these rumors, mostly on unsuspecting newbies - but these are often so cleverly executed, they can fake out seasoned investors.
Please beware of such schemes and remember that everything you see on a free forum has a very high potential of being part of a scam, even if it sounds totally believable and it grows organically.
Just because something grows organically doesn't mean it isn't a scam.
Remember, the seed for that organic growth could have been planted by a scam artist.
If you want to avoid all the scams perpetrated on the boards and in the email newsletters, you may want to try a very simple strategy that I use to make a lot of money with penny stocks and drastically reduce my risk.
I buy PREMIUM stock picks from successful traders and trade these.
In fact, this is the primary way I make money in the stock market and I make enough that I am able to fund several non-profits.