Stock-related Image Spam

November 13, 2006 12:28 PM

What is the point of stock-related image spam that tells me to invest in a certain company?

An example of what I mean can be found here - you've probably seen it before! I have a poor understanding of stock markets too, but I get the basic principles.

NB: I've seen this, but it doesn't explain the actual point of them.

posted by samstarling to computers & internet (15 comments total)

Penny stock Spam yields Profits from NPR.
posted by vacapinta at 12:39 PM on November 13, 2006

It's a pump and dump scheme.

Basically, they convince people to buy which causes the stock price to rise. Then they sell their shares and the price goes back down, leaving you with worthless stock.
posted by stefanie at 12:43 PM on November 13, 2006

And these sort of schemes actually work? People take stock advice from spam e-mail?
posted by ThePinkSuperhero at 1:07 PM on November 13, 2006 [1 favorite has favorites]

People take stock advice from spam e-mail?

If you know how they work, you may actually be more tempted to do it, thinking you can get in early too and get out soon after. So, it takes advantage of people's greed - a safe thing to bank on it seems.
posted by vacapinta at 1:21 PM on November 13, 2006

Ok, I'll admit, I was tempted to do it, so I guess I just proved you right, vacapinta.
posted by ThePinkSuperhero at 1:26 PM on November 13, 2006 [1 favorite has favorites]

People take stock advice from spam e-mail?

Not many people, but some people, yes. Whether they're dumb, gullible or greedy is anyone's guess.

The next time you get one of these, start watching the price, and VOLUME of the stock for a week (and take a look at the week before).

You'll see a small spike in volume before the spam (when the pumper made their purchase -- in this case, likely on the 8th), and then usually, you'll see a brief run-up in price on significant volume, as the spamees attempt to get in and out, so as to fleece the stupid people that bought in.

It doesn't take much to move the price of a 10 cent stock. If someone can send out a million messages, and have one hundred people respond to them, they'll get a dramatic ROI in a short period of time. (Assuming the 8th-13th on this stock, they made about 25% in 5 days)

These sorts of scams have been going on since the dawn of the equities markets (if not before -- I hear that Tulips will be worth five times their current value really soon). The internet has made them somewhat easier, with the easy distribution method of spam, and the fact that millions more people have unfettered access to the markets (if you had to call your broker to make one of these trades, they'd probably talk you out of it... but a form doesn't. And, with the 24 hour nature of online trading, you can put in an order overnight, and have it filled at market's opening -- which seems to have happened a lot here. Lots of people put in orders thinking they'd get it at Friday's closing price, about 95 cents, but instead ended up purchasing at the Ask prices available at the opening of the market (about $1.10))

Within a week or so, you'll see it back down in the 70-80 cent range.
posted by toxic at 2:05 PM on November 13, 2006 [2 favorites has favorites]

This is fascinating. What's the effect on the company? I mean, are there reputable companies that are traded like this that are getting whipsawed by spammers, or are pretty much all of these companies fly-by-night operations?
posted by scrump at 2:31 PM on November 13, 2006

Can you make money if you buy on the day you get the spam and sell tomorrow? Or are they faster than that?
posted by smackfu at 3:33 PM on November 13, 2006

And these sort of schemes actually work? People take stock advice from spam e-mail?
posted by ThePinkSuperhero at 1:07 PM PST on November 13

They sure do. One of our members is actually one of these scammers.
posted by Optimus Chyme at 4:59 PM on November 13, 2006

Can you make money if you buy on the day you get the spam and sell tomorrow

Generally, not without 20-20 foresight or a time machine. The only way to reliably make money on pumped stocks is to purchase them before they are pumped. By the time you get the spam, it's almost certainly too late, as thousands of gullible/dumb/greedy people have got the same idea as you.

All of the buyers post-spam are purchasing shares at an inflated price. Frequently the scammers are the other half of this transaction (the sellers, who set the Ask price -- if you don't know what I'm talking about, read up on how the markets actually work, trade prices are set when Bid/Ask prices meet -- buyers set the Bid, sellers set the Ask. When one person has a lot of shares, they can manipulate the Ask price quite easily, and since their basis is low, they can virtually always keep the Ask below anything you'd be able to offer). For you to then profit, you'd have to find someone who'll purchase it at an even more inflated price (and you'd have to wait until nobody was offering shares at a price below your ask... i.e. until the pumper had finished dumping).

You're much more likely to just lose your money. Again... look at the prices of pumped/dumped stocks (spend some time, do your homework), and it'll become apparent -- sharp rises, then flatlines as the dumping happens, then declines.

But more importantly, acting on a hot stock tip you received from spam encourages this sort of antisocial behavior, lets the scammers profit illegally, hurts the legitimate companies that have their shares manipulated (often without their knowledge), and makes it much harder to track these guys down based on trading patterns.

Just don't. Don't even think about it.
posted by toxic at 6:45 PM on November 13, 2006

Worse yet they forge their headers, and I wind up getting a thousand or so bounced emails every single bloody day.
posted by tomble at 7:13 PM on November 13, 2006

But could you short the pumped stock, knowing that its value would go back down when the scam was over?
posted by bingo at 8:38 PM on November 13, 2006

But could you short the pumped stock, knowing that its value would go back down when the scam was over?

No.

Most brokers won't allow you to short sell a stock that trades for less than $5 (or any other security that's non-marginable). A handful (including the one I used to work for) will lower that limit to $3 per share for customers with sufficient liquid assets and investment experience.

To allow you to short a stock, your broker has to borrow that security from somewhere. There is essentially no mechanism in place to borrow an OTCBB or Pink Sheet security (the less regulated environment where these things virtually always trade), and even if there were, no reputable broker would touch it.

Repeat after me: There is no legitimate way for an innocent individual to systematically profit from pump and dump stock scams. The best thing you can do with your stock spam is delete it and move on.
posted by toxic at 10:08 PM on November 13, 2006

The fact is spam does work, it works on small percentages on enormous numbers.

There are enough greedy, gullible, ignorant or misinformed people for these scams to work.
posted by matholio at 8:48 PM on November 14, 2006

Within a week or so, you'll see it back down in the 70-80 cent range

Not that anyone's still reading this thread, but the spammed stock in question closed at 80 cents per share today.
posted by toxic at 4:10 PM on November 17, 2006