LCTH Case Study (Sept - Dec 2010) of the "Pump and Dump" phenomenon for penny stocks

Penny Stocks: Pump and Dump (SELL TO SUCKERS)

3.4.2011

https://myinvestingnotes.blogspot.com/2011/04/penny-stocks-pump-and-dump-sell-to.html

Based on the detailed data and observations you provided about LCTH and the linked forum discussions, here is a summary and discussion of the "Pump and Dump" phenomenon for penny stocks.

Summary of the LCTH Case Study (Sept - Dec 2010)

The provided data for LCTH is a classic textbook example of a "Pump and Dump" scheme. Here's how the pattern unfolded:

1. The Setup (Pre-Pump): For months (from at least May 2010), the stock traded quietly at low volumes, with prices hovering consistently between RM 0.26 and RM 0.31. This was the period when promoters/manipulators were likely accumulating shares at these low prices.

2. The Priming & Promotion: As noted, the stock was promoted in internet forums. This created subconscious awareness among retail investors, putting the stock on their "radar screens."

3. The Ignition (Late Oct - Early Nov 2010):

   • Volume and price activity began to increase noticeably from late October.

   • November 4, 2010, was the climax. The stock gapped up, with the price hitting a high of RM 0.41 on an astronomical volume of 11.5 million shares—many times higher than any previous volume. This was the frenzy phase where hype peaked.

4. The Dump: The key question is answered here: Who sold on November 4th? The manipulators and "smart money" who had accumulated earlier sold their holdings (dumped) into the massive retail buying frenzy. The price closed at RM 0.38, already off the day's high.

5. The Aftermath & Trap (Post-Nov 4):

   • The party was essentially over, but more "suckers" entered over the next few days (Nov 8-12), buying at elevated prices (RM 0.37-0.40), providing an exit for remaining promoters.

   • With no new buyers left and the manipulators gone, the price began a precipitous fall. By late November, it was back to ~RM 0.28.

   • The following months (Dec 2010 - Jan 2011) saw the price drift listlessly between RM 0.25 and RM 0.30, leaving latecomers holding significant losses.

Key Lessons from This Event

1. Volume is a Tell-Tale Sign: A sudden, massive, and unsustainable spike in volume (like on Nov 4) is often the hallmark of a dump. It represents a transfer of shares from manipulators to the public.

2. The "Talk of the Town" is a Red Flag: When a previously unknown penny stock becomes wildly popular in forums and chat rooms, it's often near the end of the pump cycle, not the beginning.

3. The Greater Fool Theory Fails: Investors who buy during the hype are betting they can sell to a "greater fool" at a higher price. When the music stops, they find they are the greatest fools left holding the bag.

4. Low Price ≠ Value or Opportunity: A stock trading below RM 1.00 is not inherently cheap. Its low price often reflects higher risk, lower liquidity, and makes it easier to manipulate.

---

Summary of the Linked Forum Discussions

The forum posts you linked discuss other suspected penny stock schemes, reinforcing the same lessons.

1. "Penny Stocks: Pump and Dump" (General Thread):

   • This thread serves as a warning and educational resource. It defines the "Pump and Dump" scheme.

   • It describes the cycle: Accumulation → Promotion/Hype (Pump) → Distribution (Dump) → Price Collapse.

   • It warns investors to be skeptical of anonymous tips, "hot news," and coordinated hype on forums and social media, especially for stocks with thin trading histories.

2. "GSB: 'Hidden Gem' or 'Pump and Dump Penny Stock'" (Specific Case):

   • This thread shows the debate in real-time that occurs around a suspected stock.

   • Proponents ("The Pump"): Argue GSB is a "hidden gem" with fantastic future prospects (e.g., ventures into high-tech fields, great management), urging others to buy before it "rockets."

   • Skeptics ("The Warning"): Point out red flags: consistent poor financial results, frequent changes in business direction, a history of private placements that dilute shareholders, and a share price pattern that looks manipulated. They accuse the promoters of creating a narrative to justify a pump.

   • This thread perfectly illustrates the conflict between hype and fundamentals. It shows how forums can be used to prime an audience with a compelling story, setting the stage for a potential pump.

Overall Discussion & Conclusion

The LCTH data and the forum threads collectively paint a clear picture of a persistent market manipulation tactic:

• Target: Low-priced, low-liquidity penny stocks.

• Method: A combination of secretive accumulation and public hype generation via modern communication channels (forums, chat groups).

• Psychology: It exploits greed, fear of missing out (FOMO), and social proof. Seeing others talk about gains validates the hype and pushes cautious investors to finally participate—almost always at the wrong time.

• Outcome: A wealth transfer from late-coming retail investors ("dumb money") to the scheming promoters ("smart money").

Final Advice for Investors:

• Extreme Skepticism: Treat unsolicited penny stock tips, especially those accompanied by hyperbolic language and promises of quick riches, with extreme skepticism.

• Do Your Own Research (DYOR): Look at years of financial statements, not just the future story. Check for profitability, debt, and cash flow.

• Volume Analysis is Crucial: Learn to read volume spikes. Ask yourself, "Who is selling into this huge volume, and why?"

• Understand the Motivation: Forum posters have no fiduciary duty to you. Ask what their motive might be for urging you to buy.

The most important lesson is that in the world of penny stocks, if something seems too good to be true and is being shouted about by strangers online, it almost certainly is a trap. True long-term investment opportunities are rarely discovered through forum hype and do not require a frantic rush to buy.

Stock Market Scams

 

Stock Market Scams

https://myinvestingnotes.blogspot.com/2012/03/stock-market-scams.html

28 March 2012

1. The Pump and Dump

The pump and dump is one of the oldest and most effective scams. Usually, pump and dumps are used on small stocks selling below $1.00 a share because it is easier for pump-and-dumpers to manipulate the stock price with smaller stocks.

2. Insider Trading
There are actually two types of insider trading: legal and illegal.

Summary

This article outlines two common types of stock market scams that exploit unsuspecting investors:

1. Pump and Dump
   A fraudulent scheme in which insiders artificially inflate ("pump") the price of a low-value stock—often penny stocks—by spreading false or overly optimistic information through channels like Internet chat rooms or press releases. As outside investors buy in and the price rises, the scammers sell ("dump") their shares at a profit. Once the hype fades and the truth emerges, the stock price collapses, leaving ordinary investors with nearly worthless shares.

2. Insider Trading
   There are two types:

   • Legal insider trading: When company insiders (employees, executives) trade their company's stock but properly report it to the SEC.

   • Illegal insider trading: When insiders trade based on material non-public information—or when they tip off others who then trade. The article suggests illegal insider trading is widespread, even though the SEC occasionally prosecutes high-profile cases to deter it. The author estimates that many insiders routinely profit from undisclosed company information.

Discussion Points

• Accessibility of Scams: The Internet has made "pump and dump" schemes easier to execute by allowing fraudsters to reach large audiences quickly.

• Vulnerability of Investors: Both scams prey on investors' trust and desire for quick gains—especially in the case of penny stocks, which are easier to manipulate.

• Regulatory Challenges: While illegal, these practices persist. Insider trading, in particular, is described as an "open secret," implying enforcement is inconsistent and many violations go undetected.

• Investor Responsibility: The article implicitly warns investors to be skeptical of "too good to be true" opportunities and to research before investing, especially in low-priced stocks or tips from unverified sources.

Comment

The article serves as a clear, practical warning for investors, emphasizing that scams are not only prevalent but have evolved with technology. While it rightly highlights the persistence of illegal insider trading, it could further discuss how ordinary investors can protect themselves—such as by verifying information through official SEC filings and avoiding investments based solely on rumors or anonymous online hype. Ultimately, it reinforces the need for both investor education and stronger regulatory oversight to maintain market integrity.

Hidden hands behind penny stock surge

Hidden hands behind penny stock surge (The Edge) 2020

https://myinvestingnotes.blogspot.com/2020/10/hidden-hands-behind-penny-stock-surge.html

Based on a 2020 special report by The Edge Malaysia, a group of individuals, suspected of acting together, were linked to over 20 publicly traded companies on Bursa Malaysia. These companies, often penny stocks with poor fundamentals, experienced unexplained, volatile price surges.

The "Irrational Exuberance" of Selected Stocks

The report highlighted extraordinary, unexplained gains in several loss-making companies over a short period in 2020, which were disconnected from their financial performance:

• Saudee Group Bhd: Gained over 300% despite significant net losses.

• Anzo Holdings Bhd: Surged over 1,000% in about two months.

• PDZ Holdings Bhd: A financially troubled shipping company gained over 500%.

• XOX Bhd: Gained over 430% in six weeks.

Subsequent Developments and Reactions

The situation continued to evolve after the original report:

• Official Scrutiny: In 2023, authorities, including the Inland Revenue Board and Malaysian Anti-Corruption Commission, raided offices in Menara Lien Hoe to investigate allegations of stock price manipulation and money laundering. The Securities Commission Malaysia (SC) was also said to have the group "on its radar".

• Legal Action Against the Media: In 2022, editors from The Edge were charged with criminal defamation by businessman Datuk Kua over the articles. The Edge stated the articles were based on public data and argued the charges were an inappropriate use of public resources for a civil matter.

• Market Activity: The volatile trading of the identified penny stocks subsided after the 2021 article and regulatory warnings, but not before many investors suffered losses.

Understanding Penny Stock Manipulation

The alleged activities align with classic market manipulation schemes:

• Pump-and-Dump: Fraudsters artificially inflate ("pump") a stock's price through coordinated buying and misinformation, then sell ("dump") their holdings at the peak, leaving other investors with worthless shares.

• Asset Shuffling & Cash Calls: The group was accused of passing assets between linked companies and repeatedly raising capital through share placements, potentially to move funds or enrich certain parties.

Hidden hands behind penny stock surge (The Edge)

Special Report: Hidden hands behind penny stock surge 

The Edge Malaysia September 30, 2020

This article first appeared in The Edge Malaysia Weekly, on September 21, 2020 - September 27, 2020.

ASTUTE market observers would have noticed on the local bourse a group of individuals, supposedly acting in concert, who have amassed shares in more than 20 publicly traded companies. These companies — linked via shareholding and directorships — are often on the most actively traded list, with huge, fluctuating share prices. “It (the companies) is all linked to the same person; usually, the most actively traded list on a daily basis involves these counters,” one source says when asked which are the companies that are linked. 

However, research by The Edge (see chart on the 21 companies) indicates that while other businessmen have surfaced, the individual said to be in control of the group of companies is not officially onboard or present as a shareholder.   “This [his not surfacing] could be due to several issues,” another source adds. 

It is also telling that nine of the 21 companies mentioned — 

• AT Systemization Bhd, 
• MLabs Systems Bhd, 
• Focus Dynamics Group Bhd, 
• mTouche Technology Bhd, 
• Fintec Global Bhd, 
• XOX Bhd, 
• M3Technologies (Asia) Bhd and 
• NetX Holdings Bhd 

— have their principal place of business, head office, business office or corporate office in Menara Lien Hoe, near Tropicana Golf Country Resort in Petaling Jaya. 

On its website, Lambo Group Bhd states that its address is at Menara Lien Hoe, even though the address in its annual report is in Old Klang Road in Kuala Lumpur. 

In 2006, Lien Hoe Corp Bhd sold Lien Hoe Tower Sdn Bhd, which owns Menara Lien Hoe, to privately held E-Globalfocus Sdn Bhd for RM1 and the assumption of RM43 million in debts. Meanwhile, E-Globalfocus was 68%-controlled by Cubes Innovative Sdn Bhd, a company 99%-controlled by Chuah Hock Soon. 

Chuah and businessman Datuk Kenneth Vun @ Vun Yun Lun were charged with four others in July 2014 for allegedly manipulating DVM Technology Bhd shares in March 2006. 

Vun has had several issues with the Securities Commission Malaysia and, in 2009, had to restitute RM2.496 million — being the amount of company funds that he had caused to be misused for his personal benefit, according to the regulator — to his then flagship FTEC Resources Bhd. Since FTEC — which morphed into Tecasia Bhd and later Mangotone Bhd — was delisted, 

Vun has had little direct presence in the market. However, Vun’s two sisters, Carol Vun On Nei and Grace Vun Siaw Nei, hold stakes of 3.64% and 0.67% respectively in Xidelang Holdings Ltd. 

Fragmented shareholding 

While Fintec Global seems to be a prominent company at the centre of the maze, its shareholding is fragmented, with several blocks of shares parked under Sanston Financial Group Ltd. In several of the 21 companies on the list, Sanston Financial is present in the shareholding list. Other companies that surface as shareholders in these list of companies include Global Prime Partners Ltd and Cita Realiti Sdn Bhd, a private company wholly-owned by one Kamarudin Khalil. Other shareholders, albeit usually holding small stakes, among the 21 companies include Datuk Jacky Pang Chow Huat — who, apart from a 11.84% stake in Sanichi Technology Bhd — has small stakes in DGB Asia Bhd, Focus Dynamics, MNC Wireless Bhd and Xidelang. Pang is also a director in Sanichi Technology.

Meanwhile, businessman Mak Siew Wei has 23.4% in AT Systemization, 17.07% in Green Ocean Corp Bhd and small stakes in Focus Dynamics and Xidelang. He is also a director at AT Systemization, Green Ocean and Saudee Group Bhd. Datuk Eddie Chai Woon Chet recently acquired a 62.37% stake in restaurant operator Oversea Enterprise Bhd, and has a 6.71% shareholding in Anzo Holdings Bhd, where he is managing director and has a board position in M3Technologies (Asia). Another name frequently seen is Datuk Kua Khai Shyuan, who, besides a 5.9% stake in mTouche Technology, has small shareholdings in Focus Dynamics, PDZ Holdings Bhd and Sanichi Technology, and has board seats on Trive Property Bhd, DGB Asia and MNC Wireless. Former Umno treasurer and former Bank Simpanan Nasional Bhd chairman Datuk Abdul Azim Mohd Zabidi surfaces as a director in four of the companies — Fintec Global, DGB Asia, Anzo and XOX. 

Most of the companies are loss-making and small in terms of market capitalisation, with the exception of Focus Dynamics, which has a market value exceeding RM5 billion. Nevertheless, Focus Dynamics, which is involved in operating food and beverage outlets, seems to be the star performer, with its stock price hitting a multiple-year high of RM2.64 recently on Sept 17, despite mustering a meagre RM3.08 million in net profit from RM20.72 million in revenue for its six months ended June this year. Year to date, Focus Dynamics stock has gained about 400%. 

Irrational exuberance 

Trading volume on most of the 21 companies is generally high, and many have shown unexplainable strong gains over the past few months. 

• For instance, Saudee’s stock hit a low of eight sen on March 17, and picked up momentum in June to hit a 52-week high of 67 sen on Aug 13, gaining more than 300%. For its nine months ended April this year, Saudee, whose mainstay is in frozen food and poultry, suffered a net loss of RM27.78 million from RM57.61 million in revenue. Last Friday, Saudee closed at 48 sen, translating into a market capitalisation of RM77.3 million. 
• If you are impressed with Saudee’s gains, Anzo — a loss-making company that has a business in timber products — gained more than 1,000% from mid-May to hit a high of 26 sen in July. Anzo closed at 11.5 sen last Friday, giving it a market capitalization of RM102.7 million. 

There are several companies on the list that have shown similar patterns. 

• XOX, which is involved in cellular telecommunication services, gained more than 430% from mid-July to hit a high of 39.5 sen at end-August. In mid-March this year, XOX was trading at one sen. The stock closed last Friday at 19.5 sen, translating into a market value of RM562.8 million.
• Ailing shipping company PDZ’s stock was trading at one sen in mid-March, but at end-June, it gained more than 500% to 32.5 sen in mid-July. For a company mired in law suits and a significant dearth of shipping assets, PDZ’s meteoric rise is surprising to many. PDZ ended last Friday at 10 sen, giving it a value of RM89.4 million. 
• Similarly, Sanichi Technology, which is in precision moulding, saw a sudden surge in trading volume at end-May, with its stock spiking more than 150% to hit a high of 12.5 sen on June 2, after which it tapered off. 

While the peaks may be enticing to punters, the change in fortune, with counters falling to their troughs, can be a deterrent. 

• mTouche Technology, which has a wireless network and mobile messaging business, saw its stock crash from a high of 20.5 sen on Feb 20 this year to a low of 5.5 sen on May 12. 
• DGB Asia, a tracking solutions company, was trading at 19.5 sen in the early part of November last year, but by mid-March, it had shed most of its value to close at 1.5 sen on March 19. 

It is also noteworthy that companies such as Water Beaute World Bhd and WBW Global Sdn Bhd, have 1.02% and 0.42% respectively in Trive Property. These two companies were involved in get-rich-quick and fake online investment schemes. Both these companies were reported in the past to have stakes in XOX, while WBW Global also had a substantial stake in Anzo Holdings.

https://www.theedgemarkets.com/article/special-report-hidden-hands-behind-penny-stock-surge?type=malaysia

Comment:

Fine piece of investigative financial investigation and journalism.  Thanks to Edge.

One of the biggest dangers with Investing is Overconfidence

Quote:   

Re: uyafr selection October 2010 batch
« Reply #45 on: October 27, 2010, 10:16:15 AM »
Reply with quoteQuote
Quote from: smartinvestor on October 27, 2010, 10:09:42 AM
Agree with Uyfar...
GenY...please tell the MANY company that also doing well too...
DIGI? KPJ? Genting?
Here is the place we share information and earn $$$ together

yep, do u know how much is DIGI, KPJ Gentings ? hehehe if suddenly those counter drop.. kena kaw kaw, if go up.. the most 5-10%

BUT LCTH, I dont see how it can drop much, but if go up... even if go up 100% it is still cheap and good. So think for yourself, is it worth risking on those counter already too high up or buy a counter which is still rock bottom and rock solid.

http://www.investlah.com/forum/index.php/topic,11510.msg195753.html#msg195753


The above was a post in October 2010 in a blog that I participate.

Here are the 5 Years charts of DIGI, KPJ, Gentings and LCTH performance.



Digi Share Price
Oct 2010  RM 2.50
July 2013  RM 4.70
Capital Gain 88%




KPJ  Share Price
Oct 2010  RM 3.80
July 2013  RM 6.50
Capital Gain 71%



Genting Share Price
Oct 2010  RM 10.50
July 2013 RM 10.50
Capital Gain 0%

versus



LCTH Share Price
Oct 2010  RM 0.28
July 2013  RM 0.18
Capital Loss  - 35.7%

From October 2010 to July 2013:
1.  The prices of the shares of Digi, KPJ have performed very well.
2.  Genting share price remained relatively unchanged over this period.
3.  The share price of LCTH has tanked significantly.


Questions I pose:
1.  Are higher priced stocks more risky than penny shares?
2.  Are higher priced stocks more risky because they have a longer way to drop?
3.  Are penny shares less risky because should their prices correct, the drop will be less?
4.  Why are higher priced stocks priced such, and why are penny stocks priced such?
5.  What are the fears that kept this "investor" away from Digi, KPJ and Genting?  Are these fears rational or irrational?
6.  What drives his enthusiasm to penny stocks?  Greed?  Ability?  Confidence?  Past gains?   Are these emotions rational or irrational?
7.  What single characteristic, if any, distinguishes the gains in Digi, KPJ and no loss in Genting, compared with LCTH?


What lessons can we derive from the above observations?
Please feel free to post your comments.

How Penny Stocks work

Spotting Sharks Among Penny Stocks

October 30 2012

For every publicly traded corporations with market capitalization in the hundreds of millions and billions, there are thousands of smaller companies with much more modest market caps. Because these companies have smaller operations and more risks, they trade at only a fraction of the price of their much larger counterparts. These are, of course, the infamous penny stocks. This article will look at some of the dangers that lurk in penny stocks trading.

The Myth Of Evolution
One thing that keeps people dabbling in penny stocks is the belief that these corporations will evolve into firms that will become much like their larger counterparts. This has happened, but not as regularly as penny stock proponents would have you believe.

Many public firms simply defer going public until they have grown large enough for it to be worthwhile. Until that time, they will usually raise money through private investors or corporate loans along with their regular operations. Generally, these companies do not need an initial public offering (IPO) to fund an expansion. The larger a company becomes, the more practical it is to raise funds through a public offering, because although equity is seen as a relatively more expensive form of financing, it often becomes necessary for larger companies.

Good Intentions?
If a company is offering its stock at the penny level, it is usually for one of the following reasons. First, the company may be on the cusp of a large expenditure, and it believes that the money raised by an IPO will be enough to finance it. Second, the company may have reached the apex of its growth and it wants to change its tax structure or disperse the profits.

There are also less noble reasons for a company to go through an IPO process when it is still quite small. Sometimes a company is talked into an overpriced and overhyped IPO by penny stock brokerage firms that want to make a quick dollar from unwary investors. An IPO could also be an attempt by the company's owners to offload their ownership to investors because they see little promise in the company's future.

Oranges and Apples
It is important to remember that within penny stocks, there is a wide range of companies. You can find an oil prospecting company with a recognizable corporate structure right next to a family-run organic farm that specializes in cabbage. Some of those companies may allow investors to have a say in who is running the show, and some may be one-man operations that suffer terribly when the founder retires or dies. And while larger companies generally strive to please investors, penny stock companies may pay no mind to their investors at all.

The Bait
Not many value investors spend their time in penny stocks. Although a well-managed penny stock company may see good returns over the years, it is much more difficult to get full disclosure and the rules that apply to penny stocks are much looser. These companies do not face the same standards as large firms, are required to file with the Securities and Exchange Commission (SEC) less frequently and have limited requirements for listing.

What lures investors into the oceans of penny stocks is the dream of buying 1,000 shares for $0.50 and then later selling them for $5 or some similarly lucrative transaction. Unfortunately, that ocean is full of sharks that know exactly what you're looking for.

The Bite
Some people think that brokerage firms that specialize in penny stocks are often just a step up from a guy with a bat waiting to rob someone in a dark alley. Successful companies don't need people to cold call and talk up their stocks. Penny stockbrokers engage in a mixture of cold calling and targeted sells. They often have a collection of leads, people who have had a history of buying into poor investments over the phone or who have given their information to someone who turned around and sold it.

Using this list, the stockbrokers will call prospective marks and introduce themselves. Soon after, be it a day or a week, they will call again with a chance to get in on the ground floor of a stock that is set to rocket away. This will prove to be a stock that they have been pumping up in message boards, emails, newsletters, etc. Then, when investors buy in, the firm and its partners get out and leave a gaping wound in the investors' portfolios. These firms are also known to take their pound of flesh in the form of high commissions. 

These firms, and the brokers that support them, will often use techniques such as advertising in mass emails. You may see mailings in your account about the latest greatest stock that is set to return 1,000%. In all cases, without doubt, it is a penny stock, and one you probably should avoid. 

Multiple Victims
Sometimes the companies involved in these swindles are complicit, but even honest companies find their stocks targeted by unscrupulous penny stockbrokers. These sharks may take an innocent company that has had a few good years and make false publications or claims that "insiders" have said it is poised for a leap. When the brokers pull out, they have not only ripped off investors but also ruined the reputation of an otherwise stalwart company.

Blood in the Water
If an investor has the poor judgment to get involved with penny stockbrokers, he or she may find a permanent target painted on his or her back. Because of the profits and commissions involved, these brokers will persist with their calls until they get your check - after that the calls will dry up and the number may even change. Many of the sharks in penny stock brokerages have securities violations on their records, but it is their ability to sell that keeps other firms hiring them - and it is dishonest profits that keep penny stock brokerage firms in business.

The Bottom Line
By and large, attempts to regulate penny stocks have been thwarted. The low prices make them ideal for manipulation because a few false cents per share can mean thousands if you hold most of the shares. The internet has also offered a whole new medium by which to cheat investors. For every site that exposes penny stock fraud, there are hundreds of sites espousing one undiscovered treasure or another. The best way to avoid getting swindled in the penny stocks is just to stay out of the water - if you don't swim, you won't be bitten.

Read more: http://www.investopedia.com/articles/stocks/07/penny_stocks.asp#ixzz2AmZW70kj

The impact of spam that touts stocks upon the trading activity of those stocks . Spam Works!

Spam Works: Evidence from Stock Touts and Corresponding Market Activity

Laura Frieder 

Purdue University - Krannert School of Management

Jonathan Zittrain 

Harvard Law School and Kennedy School; Harvard School of Engineering and Applied Sciences; Berkman Center for Internet & Society
March 14, 2007

Berkman Center Research Publication No. 2006-11
Harvard Public Law Working Paper No. 135
Oxford Legal Studies Research Paper No. 43/2006 
Abstract:      
We assess the impact of spam that touts stocks upon the trading activity of those stocks and sketch how profitable such spamming might be for spammers and how harmful it is to those who heed advice in stock-touting e-mails. We find convincing evidence that stock prices are being manipulated through spam. We suggest that the effectiveness of spammed stock touting calls into question prevailing models of securities regulation that rely principally on the proper labeling of information and disclosure of conflicts of interest as means of protecting consumers, and we propose several regulatory and industry interventions.

-  Based on a large sample of touted stocks listed on the Pink Sheets quotation system and a large sample of spam emails touting stocks, we find that stocks experience a significantly positive return on days prior to heavy touting via spam. 

-  Volume of trading responds positively and significantly to heavy touting.  For a stock that is touted at some point during our sample period, the probability of it being the most actively traded stock in our sample jumps from 4% on a day when there is no touting activity to 70% on a day when there is touting activity. 

-  Returns in the days following touting are significantly negative. The evidence accords with a hypothesis that spammers "buy low and spam high," purchasing penny stocks with comparatively low liquidity, then touting them - perhaps immediately after an independently occurring upward tick in price, or after having caused the uptick themselves by engaging in preparatory purchasing - in order to increase or maintain trading activity and price enough to unload their positions at a profit. 

-  We find that prolific spamming greatly affects the trading volume of a targeted stock, drumming up buyers to prevent the spammer's initial selling from depressing the stock's price. 

-  Subsequent selling by the spammer (or others) while this buying pressure subsides results in negative returns following touting. Before brokerage fees, the average investor who buys a stock on the day it is most heavily touted and sells it 2 days after the touting ends will lose close to 5.5%. 

-  For those touted stocks with above-average levels of touting, a spammer who buys on the day before unleashing touts and sells on the day his or her touting is the heaviest, on average, will earn 4.29% before transaction costs. The underlying data and interactive charts showing price and volume changes are also made available.

Number of Pages in PDF File: 44

Keywords: spam, stock, tout, markets, e-mail, Internet, cyberlaw, SEC, unsolicited, commercial, manipulation, timing, consumer protection, pink sheets, efficiency

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=920553

Playing Penny Stocks (Chan dumps Ariantec and Metronic shares.)

Playing Penny Stocks

At first glance, penny stocks seem like a great idea. With as little as $100, you can get a lot more shares in a penny stock than a blue chip that might cost $50 a share. And, if the two blue chip shares you bought went up $1 you'd only make $2, whereas if 100 shares of a $1 stock went up a $1 you would double your money.

Unfortunately, what penny stocks offer in position size and potential profitability has to measure against the volatility that they face. 

Penny stocks can shoot up. It happens all the time - but they can also crash in moments, and are exceptionally vulnerable to manipulation and illiquidity. 

Getting solid information on penny stocks can also be difficult, making them a poor choice for an investor who is still learning.

Related: 

The Lowdown On Penny Stocks.

Chan dumps Ariantec and Metronic shares

Ariantec Global

Stock Market Scams

As an investor, you must be aware of the stock market scams. The following are two of the most common stock scams.

1. The Pump and Dump
The pump and dump is one of the easiest and most common ways of taking money away from unsuspecting investors. Although it is illegal, the use of the pump and dump has actually increased because the Internet has made it possible to reach millions more people.

Here’s how the pump and dump works:
First, company insiders try to convince outsiders to buy a stock, usually the stock of a small over-the-counter company (Penny stocks). Investors are led to believe that this is a “once-in-a-lifetime” opportunity to make a small fortune. The fraudsters will pump up interest in the stock by sending messages through Internet chat rooms, or posting overly optimistic press releases.

Before the Internet, pump and dumpers used to call people on the telephone (often called Boiler Rooms). The idea is to artificially pump up the price of a stock by spreading false news. The stock price rises because of increased buying and speculation, not because of anything positive happening in the company.

As the stock goes higher, those with inside knowledge are prepared for the “dump.” As more people buy shares of the stock, the insiders sell all their shares for a huge profit. Eventually, the truth comes out, and the stock price falls as more people sell. Guess who is left holding the shares of the now nearly worthless stock? You guessed it – the unsuspecting investors who bought into the hype. They probably thought the price could go higher, so they never sold their shares.




The pump and dump is one of the oldest and most effective scams. Usually, pump and dumps are used on small stocks selling below $1.00 a share because it is easier for pump-and-dumpers to manipulate the stock price with smaller stocks.



2. Insider Trading
There are actually two types of insider trading: legal and illegal.

Legal insider trading is that done by company employees (insiders) who file proper paperwork with the SEC before buying and selling shares in their company. These documents are available for viewing on the SEC Web site.

On the other hand, illegal insider trading occurs when company employees buy and sell stocks based on information that is not known to the public. For example, it’s illegal for the managers of XYZ Company to buy additional shares of stock in the company if they know that a revolutionary new product is about to be released. It’s even illegal for you to buy shares of stock in that situation if company insiders (perhaps your neighbor) tell you about it.

Do you think insider trading is common?
It certainly is. It occurs a lot more often than many people think. Every once in a while the SEC catches a celebrity just to make a point that it’s watching. Nevertheless, it’s my estimate that thousands of insiders are using information gleaned from the companies they work for to make profitable transactions. It’s an open secret that those in the know are trading stocks on inside information.

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