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Stock Prices | Stock Frauds |
Stock Scams | Trading Stocks Online
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Pump
& Dump.con
Tips for Avoiding Stock Scams
on the Internet
One of the most common Internet
frauds involves the classic "pump and dump" scheme.
Here's how it works: A company's web
site may feature a glowing press release about its financial health or
some new product or innovation. Newsletters that purport to offer
unbiased recommendations may suddenly tout the company as the latest
"hot" stock. |
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Messages
in chat rooms and bulletin board postings may urge you to buy
the stock quickly or to sell before the
price goes down. Or you may even hear the company mentioned by a radio
or TV analyst.
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Unwitting investors then purchase the
stock in droves, creating high demand and pumping up the price.
But when the fraudsters behind the scheme sell their shares at the
peak and stop hyping the stock, the price plummets, and investors lose
their money.
Fraudsters frequently use this ploy with small, thinly traded
companies because it's easier to manipulate a stock when there's
little or no information available about the company. To steer clear
of potential scams, always investigate before you invest:
Consider the Source
When you see an offer on the Internet, assume it is a scam, until
you can prove through your own research that it is legitimate. And
remember that the people touting the stock may well be insiders of the
company or paid promoters who stand to profit handsomely if you trade.
Find Out Where the Stock Trades
Many of the smallest and most thinly traded stocks cannot meet the
listing requirements of the Nasdaq Stock Market or a national
exchange, such as the New York Stock Exchange. Instead they trade in
the "over-the-counter" market and are quoted on OTC systems, such as
the OTC Bulletin Board or the Pink Sheets. Stocks that trade in the
OTC market are generally among the most risky and most susceptible to
manipulation.
Independently Verify Claims
It's easy for a company or its promoters to make grandiose claims
about new product developments, lucrative contracts, or the company's
financial health. But before you invest, make sure you've
independently verified those claims.
Research the Opportunity
Always ask for — and carefully read — the prospectus or current
financial statements. Check the SEC's EDGAR database to see whether
the investment is registered. Some smaller companies don't have to
register their securities offerings with the SEC, so always check with
your state securities regulator, too.
Watch Out for High-Pressure Pitches
Beware of promoters who pressure you to buy before you have a
chance to think about and fully investigate the so-called
"opportunity." Don't fall for the line that you'll lose out on a
"once-in-a-lifetime" chance to make big money if you don't act
quickly.
Always Be Skeptical
Whenever someone you don't know offers you a hot stock tip, ask
yourself: Why me? Why is this stranger giving me this tip? How might
he or she benefit if I trade? |
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Sources: Wikipedia, FCIC, SEC and other public sources.
Stock Prices | Stock Frauds |
Stock Scams | Trading Stocks Online
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