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Inbox Alert—Don’t Trade on Pump-And-Dump Stock Emails

Inbox Alert—Don’t Trade on Pump-And-Dump Stock Emails. ©iStockphoto.com/Zeljko Santrac

Email stock spamming is back in high gear.

The latest McAfee Threats Report confirms a steep rise in spam email linked to bogus "pump-and-dump" stock schemes designed to trick unsuspecting investors. For years, fraudsters have used large-scale email pushes (what most of us call junk email, or spam) to lure potential victims into investment scams. Many of these emails tout a company's stock—typically small, so-called "microcap" companies—through false and misleading statements to the marketplace.

These false claims could also be made on social media such as Facebook and Twitter, as well as on bulletin boards and chat room pages. Often the promoters will claim to have "inside" information about an impending development, or to use an "infallible" system that uses a combination of economic and stock market data to pick stocks. Some purport to allow investors to capitalize on a new technology, strike it rich in an emerging economy, or market-time their way to huge profits. Subject lines and short messages are designed to quickly pique interest and lure investors into buying the stock—all with the goal of creating a run-up in price.

Investors should treat emails like these with extreme caution—they are very likely part of what are called "pump-and-dump" scams.

In reality, the fraudsters sending these emails are often paid promoters or company insiders who stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy that they create through the mass email push. Once these fraudsters "dump" their shares by selling them and stop hyping the stock, the price typically falls dramatically—and investors lose their money or are left with worthless, or near worthless, stock.

FINRA and the SEC's Office of Investor Education and Advocacy have one message for investors: Don't fall for these scams. They are the inbox equivalent of a boiler room sales operation, hounding investors with potentially false information about a company. When it comes to pump-and-dump spam, the smartest play is the easiest. Just hit the delete key.

For more information about pump-and-dump scams, visit FINRA.org.

Gerri Walsh is Senior Vice President of Investor Education at the Financial Industry Regulatory Authority (FINRA).

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