SEC Issues Pump & Dump Stock Scam Warning

The SEC issued an interesting alert concerning pump and dump stock emails today:

Pump-and-dump promoters frequently claim to have “inside” information about an impending development. Others may say they use an “infallible” system that uses a combination of economic and stock market data to pick stocks. These scams are the inbox equivalent of a boiler room sales operation, hounding investors with potentially false information about a company.

The fraudsters behind these scams stand to gain by selling their shares after the stock price is “pumped” up by the buying frenzy they create through the mass e-mail push. Once these fraudsters “dump” their shares by selling them and stop hyping the stock, investors lose their money or are left with worthless or near worthless stock.