Pump and Dump Follow Up
As a follow up to my story about Investment Spam and Avoiding Pump and Dump stock promotion tactics. When I first looked at the spam email promoting ANDL it was trading at $1.25, which was a day after it opened trading at $1.00. By the time I wrote the story on the 11th it was at $1.55. and as I write this it is just above it’s original open price of $1.00 after touching a high of $1.65. What isn’t on the chart is that it actually hit $.60 cents on the 17th. Ouch.
Here’s how it works. A new company like Avondale is about to go live on the stock market for the first time, but the problem is no-one knows about them. So they hire a ‘promotion’ firm and, since they don’t have any cash they pay the PR firm with shares of stock. In the case of Avondale it was 25,000 shares. The PR firm has purchased [don't forget to read the fine print of privacy statements!] the email addresses from not so scrupulous investing web sites. So they hire a semi-literate writer to do up a cheesy sales letter telling how great this company is and predicting an ‘imminent’ rise to 2 or 3 times the current value.
Then blast the email off to a couple million amatuer [greed based] investors and sit back and wait. I received the email on the 10th, so give it a day or two, the stock climbs as the amateurs begin to buy, the more they buy the more it affirms the message in the email and before you know it on the 12th the stock opens at $1.65. The PR firms shares are now worth a possible $40K. But in order to not shock the market, they sell in little chunks at a time…they ride it all the way down to .60, they probably cashed out at ~$25K. Not a bad return for one email and a $299 mailing list.
The business has spent zero and completed a $25K fleecing of amateur investors to get the word out about a company that’s major asset is “temporarily abandoned oil wells”. I get these things in my inbox constantly and I just wanted to shed a little light on what is really happening. And by the way, if you think this sort of thing only happens with two-bit pink sheet companies, think again. It is basically the same formula that drives a lot of Wall Street, it’s just slightly more sophisticated when the dollar amounts get bigger.
As a follow up you may want to check out this excellent Frontline show on www.PBS.org called the wall street fix. You can watch it online…it should be mandatory viewing for every retail investor.