Blog : Scam Because You Can

by Ed Zwirn on August 16th, 2013

The Peter Leeds site is far from the only one to have warned over the years about the unfortunate abundance of "pump-and-dump" and other fraudulent trading setups designed to separate people from their money. It has been a truism, backed up by ample evidence, that the abundance of "free" penny stock touts out there are put out by those with hidden agendas, often hoping to pump up the value of sometimes worthless shares before bailing out.

These operators proliferate for two reasons: 1) Because their scam works, with evidence showing touters reaping consistent gains and the toutees consistently losing, and 2) They can get away with it.

So the arrest this week of nine people in five states in connection with a $140 million penny stock scam spanning nearly three dozen countries can only be looked at as good news both for the legitimate penny stock following community and for investors.

The years since the massive market meltdowns of 2007-2008 have been notable for their low level of financial fraud prosecution, and any ray of hope that the Feds will finally get serious on sometimes flagrant penny stock fraud can only help boost confidence in what are by definition risky investments.

But the legitimate risk/reward ratio becomes skewed by the abundance of hucksters out there. And these hucksters do their work well, as evidenced by the indisputable fact that trading volumes always skyrocket dramatically following the mass release of a "free" penny stock pick.

I got a robocall this morning offering the following urgent admonition: "The warranty on your vehicle is about to expire. Please contact us immediately." Full disclosure: I have not owned a vehicle under warranty since 1999. Another scam pitch that frequently gets aimed at me involves some rebate for which I am supposed to be eligible on my electric bill (my bill came to $37.50 last month). The scam here, or so I've read, comes into play with the perpetrator convincing the rube to sign up for one of their debit cards.

The takeaway here is that somebody's grandmother right now may be renewing her warranty or taking that debit card. People wouldn't spend their time on these scams if they didn't pay off, and that means that somebody is taking the bait. Any Fed push against fraudulent penny stock schemes can not only have a beneficial effect upon an important part of the stock market, it could possibly put a dent in the overall scam culture flourishing these days.