Pump and Dump 8

So, what is the best method to avoid the "Pump and Dump" fraud?  As always, the most basic advice is not to invest on the fly and to stop and think before throwing money at a "once in a lifetime" investment.  The second piece of advice is the usual as well: get another opinion.

      Once again, it is worth reminding that the most common form of any type of fraud is pressure to buy.  A fraudster wants your money before you have a chance to think through an investment and so the high-pressure sales techniques are needed.

    

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

 

Pump and Dump 7

Why is it that after the hype is over the stock starts to fall in a "Pump and Dump" scheme?  In other words, why is there a "dump" part of the "Pump and Dump?"
    The whole point of the scam is to get people excited about the stock.  It has been said that the stock market is 80% psychology and 20% actual economics.  I am in no position to comment on this nor will I make the attempt.  However, it is a basic fact of advertising that the more "buzz" there is about a stock (or really just about anything), the more people will be interested in it.

     The "Pump" part of the whole scheme, therefore, is to get as many people as possible interested in the stock.  The more people interested, the better.  Once the "Dump" part of this whole thing begins, people lose interest in the stock.  Since the stock was never really a good investment anyway, once the hype dies down, there is nothing really there.

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

 

Pump and Dump 6

Let's look at the second part of the "Pump and Dump" scam - the dump.

     The dump occurs after the fraudsters have managed to sell their overpriced stock.  Like any good inside-trading scam, the perpetrators have the "inside information" that lets them sell the stock before anyone else has the knowledge that anything is wrong. 

     It is in the interests of the fraudsters to have a mass panic to entice others to sell the stock for the simple reason that the fraudsters want the opportunity to make the most money in the shortest amount of time possible.  If the stock were to keep going up in value, then it would not make sense to sell the stock before it reached maximum value. 

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

 

Pump and Dump 5

OK - back to our thread.

     Look at the first element of "Pump and Dump" again - the target is subjected to a high pressure sales pitch to buy the stock in question that will later be dumped.  How many times have we seen this before?  The target is subjected to intense pressure to "buy NOW NOW NOW" or lose out on the opportunity of a lifetime.

     As has been discussed previously on this blog, so many issues begin when someone is told that they have to buy NOW.  It is extremely unlikely that any reputable securities dealer will ever tell a client that a purchase has to be made immediately.  There are, of course, issues where a stock may be available for the first time because of an Initial Public Offering or some other type of offering that is not normally available.  However, offerings such as these are usually well-publicized or information about them is available through channels that reputable security dealers use.  If someone is telling you that this is "secret" information, something is usually strange.

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

 

Pump and Dump 4

There are really only two elements to the entire "pump and dump" scam.

     The first, as described, is the necessity of the fraudster getting as many people as possible to buy the stock.  This involves the high-pressure "boiler room" tactics of telling potential clients that the stock in question is going to go up or is going up and, in essence, the client would be a fool to miss out on the opportunity.  It involves really nothing more than a high-pressure sales pitch.

     The second element is: once the stock has reached its artificially inflated price, the fraudster now has the "inside knowledge" to know that the stock will soon be losing its value because the stock has been artificially inflated.  At this point, before anyone can really react, the fraudster now knows that he is in the perfect position to sell which, of course, he does.  He sells as much of the stock as possible.  Of course by doing so, he gets an insane profit from the whole thing.

     Once again, we see the high-pressure sales tactics at work. 

   We will discuss how to avoid this fraud in the next series of posts. 

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

 

Pump and Dump 3

OK - so we have seen how the Pump and Dump scam works: a huckster will take a stock (or like investment), advertise it to all potential buyers as the "one to buy" or "you must buy NOW!"  This creates a false sense of confidence about the stock and creates unwarranted attention.  This attention, of course, creates an incentive to purchase the stock in large quantities or encourages many people to purchase the stock.

     In any case, the result is the same: the price of the stock goes up because of the demand.  The price becomes artificially inflated.  A viscous circle develops - the more the word gets out, the more the stock is in demand which of course leads to the price of the stock go up because of the demand..

    Then, after the stock reaches its maximum inflated value (or what is thought to be the maximum value) and the hucksters then sell the stock at the artificially inflated value.  In other words, they get out while the going is good.  Once the people at the top sell the stock, it creates a spiral effect where others sell the stock as well, but at a much lower value.

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

 

Pump and Dump 2

Before we begin our exploration of "Pump and Dump," here is another overview of this scheme from Wikipedia:

http://en.wikipedia.org/wiki/Pump_and_dump

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

 

Pump & Dump 1

We will spend the next series of posts focusing on "pump and dump" fraud.  This is another classic form of fraud which appears with depressing regularity.

The FBI defines "pump and dump" as follows:

"This scheme—commonly referred to as a “pump and dump”—creates artificial buying pressure for a targeted security, generally a low-trading volume issuer in the over-the-counter securities market largely controlled by the fraud perpetrators. This artificially increased trading volume has the effect of artificially increasing the price of the targeted security (i.e., the “pump”), which is rapidly sold off into the inflated market for the security by the fraud perpetrators (i.e., the “dump”); resulting in illicit gains to the perpetrators and losses to innocent third party investors. Typically, the increased trading volume is generated by inducing unwitting investors to purchase shares of the targeted security through false or deceptive sales practices and/or public information releases."

As stated, we will explore this in the next series of posts.

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk