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ScamState: Pump and dump schemes

An occasional series on financial frauds

By Helen Huntley and Becky Bowers, Time Staff Writers
Published March 2, 2008


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[Don Morris | Times]
1. Acquire stock (lots!) in target company.
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2. Pump, pump, pump to inflate its value.
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3. Dump it, sticking buyers with a deflated mess.

Pump and dump schemes revolve around stock in small companies, whose executives may be perpetrators or victims. A key point is the stock is "thinly traded" - with infrequent transactions and few buyers and sellers - which makes the price easier to manipulate.

Example: The SEC won a judgment last year against Aleksey Kamardin, 21, of Tampa for a 2006 scheme that involved hijacking online brokerage accounts. He sold the securities the account holders owned and bought shares of 14 thinly traded stocks that he owned, driving up their price. Kamardin then sold his shares, reaping a profit of $82,960, which he transferred to a bank account in Latvia. He is thought to have fled the country. Stocks he targeted included Cyber Defense Systems of St. Petersburg and Fuego Entertainment of Miami.

1. Acquire stock (lots!) in target company.

2. Pump, pump, pump to inflate its value. How? By exaggerating claims in news releases or paid articles, using e-mail, voice mail and message board listings to "leak" a hot stock tip or even hijacking online brokerage accounts to buy up shares. The voice mail and e-mail might be extra sneaky, looking like insider information intended for someone else - and thus apparently your lucky day. It's not.

3. Dump it, sticking buyers with a deflated mess. Scammers benefit from the new, higher prices, while their quick selloff drives prices back down, leaving anyone who bought during the "pump" period with heavy losses.

Tips

Do research before investing. Read the company's filings with the Securities and Exchange Commission.

Recognize that stocks of tiny companies are risky. Don't invest more than you can afford to lose.

Ignore "pump" messages and avoid stocks you see promoted this way.

Review brokerage statements often for any irregularities in your account.

[Last modified February 29, 2008, 21:39:58]


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