TEXT OF STORY
Scott Jagow: If you’ve ever gotten spam e-mails about a stock deal, I’m hoping you just deleted them. Because they’re not only spam, they’re a scam.
Some people believe the tips. Others think they can sell the stock faster than the scam artists. Those people usually lose their money. Either way, the Securities and Exchange Commission is taking this problem seriously. Alex Goldmark tells us about Operation Spamalot.
Alex Goldmark: About a year ago, I got a hot stock tip in my inbox. I thought maybe it was because I shared a name with the company: Goldmark Industries.
But it turns out that same investment advice landed in millions of other inboxes, including Bruce Karpati’s. And he works in the enforcement division of the SEC.
Bruce Karpati: What you saw is basically on December 20, 2006, the spam e-mail saying, “Goldmark is making everyone bank,” and setting a five-day price target of $2.
That’s for a stock trading at 17 cents. A week later, it was at 35 cents a share.
Karpati: I mean this scenario, the price, yes, it doubled. But the fact is a lot of these people, they just need the volume to go up, and they’ll make huge profits and illegally obtained profits.
Its called “pump and dump.” The spammers get their hands on some penny stock, then spam innocents like me, hoping we’ll bite and drive the price up. A large campaign can boost a stock’s trading volume 50-fold. The stock peaks, the spammers sell — sometimes making millions.
Karpati: We felt it was necessary to do a trading suspension to give the public notice.
The SEC issued a 10-day trading suspension for about 40 companies. If the scammers can’t trade, they can’t scam. But suspending a company’s stock could make it much harder to raise capital.
I tried to reach the suspended companies to find out what they thought.
[Sound of an answering machine]
That was about as good as it got. So I turned to Cromwell Coulson. He’s the CEO of Pink Sheets, an over-the-counter trading mechanism. Well-known companies like Adidas trade on Pink Sheets, but so do many spam stocks.
Cromwell Coulson: For the most part, when the SEC suspends them, there is no great uproar from their customers or their employees.
He says most of the companies are tiny, and aside from spam scams, their stocks just don’t trade much.
Coulson: And the companies that are having spam happen are either involved or involved with bad people. Either way, the SEC is providing a great value to markets by suspending these.
Stock spam is down 30 percent since the anti-spam initiative started.
In New York, I’m Alex Goldmark for Marketplace.
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