This scam has been around for a very long time. The basics of a pump and dump scam are such.
I am sure if you have been active in looking up info on penny stocks online you have come across websites on the web that will email you their next big penny stock pick free of charge of of course.
They may make wild claims about a little known oil company in the hills of appalachia or somewhere else. They say this little company will soon be producing millions of barrels of oil better get into the stock while theirs still time. It trades for only 20 cents a share. The stock could go to 2 dollars a share in the next six months.
Another example might be theirs a fuel additive being developed by this company that will enable motorists to double their gas millage by using this additive. Stocks trading for 15 cents could be at 1 dollar in a few months Get the idea
Now this is how a pump and dump works. The scamers email thousands or millions of persons about the great prospects ahead for this company. Send out faxes to thousands or millions of potential investors and maybe a few dozen or maybe even hundreds of unsuspecting would be investors will buy into this scam by purchasing shares of stock in one of these companies. Turns out that the oil company in appalachia or somewhere else does exist but the wells been dry for years. And that company that was supposed to be developing that fuel additive to double gas millage turns out it never got out of the lab turns out their never was such a product in development at the company at all. The company was just a shell company used by scam artists to get unsuspecting investors into the stock.
The scam artists carefully found a company where they could easily manulate the price of the stock to their advanage. usually a stock trading on the pink sheets or the over the counter bulletin board. Its most likely theirs the need for collusion with the management of the company to pull off the scam.
So the scam artists buy shares in these stocks ahead of everyone else than start to make wild and almost unbelievable claims about the future prospects for the companies to help drive the price of the stock upword sending mass emails out to unspecting investors sending out mass faxes anyway they can have the maximum possible impact on the stock price. Thinly traded shares in a very small company can increase by huge amounts if theirs just a modest increase in the demand for the shares. Once the scam becomes known the stock collapses leaving most of the unspecting investor with shares worth little or nothing
The scam artists have long bailed out of the stock once the music stops
A word of advice stay away from websites which make unrealistic claims about a stock and promise to email you their next big winner for free .
The the link below is a video about a pump and dump scam.
http://www.youtube.com/watch?v=e8M7Q9T4NfI
Some excellent Penny Stock Investing Resources
Penny Stock Investing Newsletter
Manhattan Calumet Value Stock Hotline
Red Chip Companies
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