It’s About Time

Pump and dump stock schemes are evil. Yes, gullible people will lose money – and I’m almost not sorry for anyone who responds to SPAM by buying shares of stock. More importantly, these stock touts undermine the integrity of the entire market.

From AP via the San Fransisco Chronicle: Federal regulators suspended trading in 35 companies Thursday in a crackdown on spam e-mail sent by unknown market manipulators who profit from a rise in the share price of thinly traded companies.

The Securities and Exchange Commission said it took the action to protect investors from fraud, because the accuracy of information in e-mails about the “spammed” companies was questionable.

E-mails with messages such as “Ready to Explode,” “Ride the Bull” and “Fast Money” clog people’s inboxes _ an estimated 100 million of them a week _ and spark dramatic spikes in trading and stock prices before the spamming stops and investors lose their money, the SEC said.

The suspensions are part of an SEC effort called “Operation Spamalot,” and will remain in effect through March 21.

A respected financial journalist, with whom I’ve exchanged emails on this subject, tipped me off to the SEC’s action. I responded:

I applaud the SEC, however, these companies now must pay the price for someone else’s crimes. I say that with the assumption they’re just innocent bystanders.

And, of course, there’s nothing to stop these pump-and-dump schemes from increasing the number of companies touted by a factor of 2 or 10 or 100.

It seems likely a common thread can be traced within the ownership of all these companies. Doesn’t it?

That seems to be where the SEC has dropped the ball. Shouldn’t they be able to put together a list of the shareholders of these touted companies and find owners that connect across more than a few of these very thinly traded operations? If I were the SEC, that’s how I’d do it.

Meanwhile, within a few moments of getting the original email, I got another pump and dump stock email. It is for a company that’s not on the list. Neither is the second!

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