How common do you think pump and dump schemes are? When you have people like Cramer or CNBC making predictions do you think these people should be considered as pump and dumpers?

Yes it is very common. If there is a way to make money, people are going to do it whether it is legal or not. I’ll never forget how anti-government, hands off, little regulation of Wall Street during the last 8 years of Republican control led to many such scams on Wall Street.

There was the big scandal several years ago, when a major brokerage exchange was telling their customers to buy one of the worthless dot coms while they were selling like crazy. And of course the recent Bernie Madoff scam.

The most common place you will find pump and dump scams is with penny stocks that are thinly traded (low daily volume with low outstanding shares means even a little buying will move the stock big). Check you spam folder and you will probably see 2 or 3 emails a day hyping some $0.20 a share penny stock that is going to $1 within the next 3 months. You use to see more of these scams done by regular snail mail before the government added additional charges and prison time for using the U.S. Postal Service to facilitate such a pump and dump scam.

Every week there is new action by the SEC shutting down a pump and dump scam. A very recent one involved PacketPort.com, Inc. The SEC claims that PacketPort.com “executed a fraudulent “pump and dump” market manipulation scheme, aided and abetted by defendant William Coons III (“Coons”), involving the illegal sale of PacketPort.com common stock from about December 14, 1999, into February 2000. The scheme included, among other acts, acquiring majority control of a failed and indebted public company, changing the company’s name, laundering restrictive legends from stock certificates representing restricted and affiliate-owned stock, pumping up the trading price of the company’s stock through false publicity, and selling restricted stock to the public at artificially-inflated prices for large profits. Coons, a stockbroker, served as the primary outlet for the pump and dump, selling about 90% of the restricted shares distributed in the manipulation scheme.”

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