Anatomy of a real pump and dump

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Anatomy of a Real Pump and Dump


Disclaimer:

This is not investment advice of any kind.

You are on your own.

These types of stocks are VERY risky.

You could easily lose all your money.


This data is from

an actual SEC complaint

alleging a $33 million

manipulation of eight small US companies.


Micro-cap companies are

easier to manipulate

because they have

smaller public float.


The defendants merged Chinese companies into US public shell companies in reverse mergers.

The companies changed name and conducted a reverse split

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Large blocks of unrestricted shares

were issued at little or no cost

to nominees, whose names were

being used to disguise

the defendants’ ownership.

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This enabled the defendants

to control the entire float

of the issuer’s stock.


At first, there was little or no

trading volume in the stock,

which often traded

at prices below $1.


The defendants, corporate insiders,

or others at their direction, opened brokerage accounts in the names of

straw parties or nominees and

deposited the public companies’ stock.


Next, the defendants coordinated

the launch of spam e-mail

campaigns touting these

low-priced stocks.


These spam attacks corresponded

with press release campaigns

purporting to announce positive,

newsworthy events that hyped the

public companies’ business.


The spam e-mails contained false and misleading information and baseless

price projections.

Some of the e-mails contained false and misleading language concerning

purported acquisitions.


These spam e-mails were intended to pump or increase the prices of the

securities and/or create demand for the securities.

These campaigns often created a short- term spike in volume and price.


Along with, or shortly after,

the spam e-mail campaigns,

the defendants sold all the stock

in these public companies.


Under instructions from the defendants, the corporate insiders, or others

working on their behalf, one of the defendants immediately wired out the

entire proceeds of those sales to foreign bank accounts in the name of

those nominees.


The proceeds were used to pay the defendants and the spammers.

In some instances, part of the proceeds was also sent back to the issuer or

corporate insiders, who had concealed their beneficial ownership and trading in their respective issuer’s securities.


We now look at

one of these stocks.


To start, the company issued

30,000,000 shares of Stock

to a consultant for

“business restructuring services.”


This increased the

outstanding common stock to 31,162,902,

and the 30 million shares

were 96% of the outstanding

common stock.


Using an invalid SEC filing

for 6,000,000 shares,

the defendants were to sell

5,780,000 shares

in the pump and dump.


The stock was re-listed

on the

Over- the-Counter

Bulletin Board.


The company filed a 10-Q

with the SEC

showing $53 in cash

and a negative net worth

of $10,000.


A spam e-mail campaign

was coordinated

with a press release campaign.


The spam emails falsely said that the company was to acquire a $75 million project, that it was in partnership with

a multimillion dollar developer, a potential agreement with a brake

manufacturer, and had the prospect of build an auto exhibition center.


The spam e-mail often predicted the news in the press releases

(“get on XXX

before the news hits. . .”).

The company coordinated 13 press releases with the spam e-mail.


For 90 days before the spam, the stock traded sporadically at prices from

$0.00013 to $0.22, volume ranging from zero to 47,166 shares.

Most of the trading volume was by the defendants to create the appearance of

trading activity in the stock.


In the two weeks

leading up to the spam e-mail,

the stock only traded 12,200 shares

on two trading days at $0.11 to $0.12.


Here is

the chart


There were

three stages in the trading.


First, up until the spam campaign starts, the defendants created some trading in the market that pushed the stock from virtually nothing to twenty cents on

light volume.

The stock trades as high as 30 cents, volume 13,524.


As the spam campaign starts,

the stock spikes to 69 cents,

volume is 2,099,473.

As the spam continues, volume is over 5,000,000 shares

and the price closes at $0.20.


Here is

the chart


Assuming that most of the sell

volume was from the defendants,

their take during this week was probably over $1 million.


After the spam ends,

the stock still trades

at about ten cents per share,

hundreds of thousands of shares

per day.


By the next year,

the price is down to three cents

and the volume is only

tens of thousands of shares

per day.


This follows the pattern

I describe in my books:

accumulation,

markup

and distribution.


The stock was accumulated by the insiders at low prices when they

watered the stock and in their early purchases in the market.

When the spam started the stock was marked up and then distributed.


What caused the great spike

and the great public enthusiasm

for this stock?

Seeing the great “news” speculators buy hoping that there is a

“greater fool” to take them out

at higher prices.


Some of these buyers

are day traders

who do not care how high the stock is;

they only care

that the stock goes higher.


The stock rose to a market value of some $15 million or more at its peak when in actual fact the company only had a minimal or negative net worth,

minimal or no revenues,

and little or no cash.


Anyone paying up for the stock

was gambling on the future.

In most of the these stocks,

this future rarely materializes.


Buy stocks that are selling

below their true value,

as I describe in my book

“How to Find a Home Run Stock.”


For more on stock trading, go to my website,

www.investing-performance.com

and

http://www.investing-performance.com/


Buy my book

“How to Find Home Run Stock”

on Amazon.com


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Anatomy of a real pump and dump

Economy & Finance

Transcript of Anatomy of a real pump and dump