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Spam Businesses The Almighty Buck

The Anatomy of Pump n' Dump Stock Spamming 325

giorgiofr writes "Laura Frieder and Jonathan Zittrain have analyzed pump n' dump spam activity in their paper 'Spam Works: Evidence from Stock Touts and Corresponding Market Activity'. Unbelievably, it appears that spammers are able to achieve a 5% gain on pumped stock before dumping it, along with a dramatic increase in transaction volume of the stock. From the synopsis: ' 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 to protect consumers, and we propose several regulatory and industry interventions. Based on a large sample of touted stocks listed on the Pink Sheets quotation system, 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.'"
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The Anatomy of Pump n' Dump Stock Spamming

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  • by Reverse Gear ( 891207 ) * on Sunday January 21, 2007 @04:36PM (#17704932) Homepage
    I bet many or maybe even most of the people who start buying the stocks being spammed, buy them in the expectancy that the spamming will make the value of that stock rise.
    Thereby they reinforce this strange mafia way of making money and worst of all they make sure that loads of spam will keep on putting even more pressure on the internet.

    The only sensible conclusion I am able to draw from this is that it probably will pay of to invest in the spam-filter companies ;)
    • Re: (Score:2, Funny)

      by Anonymous Coward
      Then spam the hell out of possible clients.
    • by Master of Transhuman ( 597628 ) on Sunday January 21, 2007 @06:05PM (#17705698) Homepage
      Good point.

      There are two issues here. One is the number of idiots who buy the stock based on the spam. The other is the number of people who either: a) assess the stock on its merits and decide to buy; b) assess the SPAM on its merits, as you suggest, and decide to take advantage of it.

      I suppose one could consider spam stock touting another way of learning about what's available on the stock market. In that respect, it's like an "uninvited stock ticker". Some people are probably viewing it that way.

      It's like the 9/11 airline stock scam or the stock scam Le Chiffre uses in the James Bond film. There's always a way to make money on somebody else's stupidity or misfortune - especially if you engineer the stupidity and misfortune.

      • Re: (Score:3, Insightful)

        by nelsonal ( 549144 )
        Regarding a, the stocks touted are tiny otc or barely listed NASDAQ or AMEX stuff that doesn't have much of an operating history or products (think Infinum labs/Phantom console which was the same scam on a much grander scale).
      • Re: (Score:3, Funny)

        I buy stocks based on what shows up on http://www.spamnation.info/ [spamnation.info] , then sell them quick.
      • Re: (Score:3, Interesting)

        by superflippy ( 442879 )
        There's always a way to make money on somebody else's stupidity or misfortune

        One of my husband's fellow graduate students was a day trader back in the early days of online stock trading. He'd get up early to watch the first financial report of the day on CNN, then immediately buy all the stocks they recommended. At the end of the day, he'd sell those shares. It was a reliable way to make a profit because enough people were willing to just buy whatever CNN's experts recommended.
    • by DamnStupidElf ( 649844 ) <Fingolfin@linuxmail.org> on Sunday January 21, 2007 @06:09PM (#17705742)
      Thereby they reinforce this strange mafia way of making money and worst of all they make sure that loads of spam will keep on putting even more pressure on the internet.

      Here's the thing I don't understand. If a group of people get together and buy the same stock, and tell their friends to buy the stock, so long as none of them are prohibited from doing so due to conflict of interest, where is the illegality? If a group of people get together and buy stock and tell everyone on the Internet to buy it, where is the illegality? If a company IPOs, issues their executive officers stock, and tells investors everywhere to buy their stock, where is the illegality?
      • Mainly it's illegal because the rules prohibit it. Obviously there's no natural law that says that you can't pump-n-dump, just as there's no natural law governing any other game that we humans play.

        The rule is in place simply because it makes the game fair, fun, and profitable. We could change it if we desired, if we all decided that we wanted our stock markets to be most profitable to spammers.
  • by khasim ( 1285 ) <brandioch.conner@gmail.com> on Sunday January 21, 2007 @04:38PM (#17704946)
    Really, this should be the easiest to crack. Someone has to take the money. Or some company which then turns it over to some person. The SEC should be busting these left and right.
    • They could probably easily tackle this with some of the provisions of the patriot act. That would be infinitely more productive than the current practices of data mining in efforts to catch sub-par terrorists
    • Comment removed based on user account deletion
      • by alienmole ( 15522 ) on Sunday January 21, 2007 @04:53PM (#17705088)
        It's the people who buy before the spam goes out and sell right after (probably even same day) that you would target. Only the people behind the spam have advance knowledge of when the pump is going to occur. Plus, anyone doing this is doing more than one, so there'll be a pattern of this activity proving it can't be a fluke.
        • by Babbster ( 107076 ) <aaronbabb@NOspaM.gmail.com> on Sunday January 21, 2007 @05:31PM (#17705386) Homepage
          Here's one of [many] problems faced by investigators trying to unravel the mess: You can't know who the first person was to receive the spammed e-mail. If I (as someone who's not participating in the fraud) get one of these spams and decide to buy the stock, and I do so within minutes of the e-mail's propagation, I could end up making huge profits on the deal.

          Now, when the SEC goes over the records and sees that I have made a large amount of money on this now-"corrupted" issue, was I simply an investor who saw an opportunity based on what I perceived as - and, in fact, was once the spam was sent out - public information, or was I one of the scammers? You and I (since I just told you and we're assuming I'm being truthful) know that I picked up the stock only after the scam was initiated. The SEC, on the other hand, can't tell if I was simply lucky or if I timed my purchase based on foreknowledge that the scam was being initiated at that time on that day.

          In other words, if a scammer changes the timing of their purchase to occur after the spam has gone out, large profits could still be realized thanks to the naive and the opportunistic who subsequently receive the e-mail.

          Of course, even the purchases made before the scam could be masked to a large extent by giving tips to a few people one knows will keep their mouths shut (if not to the SEC then at least to other "investors" before the scam) and having them buy the issue.

          In short, it's a problem that's not easily solved.
          • Re: (Score:2, Insightful)

            by Anonymous Coward
            That is where the data mining comes in.
            When you have bought penny stock 20 times in a year, and every time it turned out that many other persons wanted to buy it shortly after you and it was mentioned in a stock spam run, chances become more and more that you are behind the spams instead of getting your info from the spams.
            So while it will be difficult to prove from a single case, bringing together lots of data will bring the proof.
            • Re: (Score:3, Insightful)

              by plover ( 150551 ) *

              So while it will be difficult to prove from a single case, bringing together lots of data will bring the proof.

              Unfortunately, bringing together lots of data will create a correlation, perhaps a strong correlation. But they will not provide the actual proof. Unless they find harder evidence (payment to a spammer, letters to a co-conspirator, a confession from another involved person) there's nothing to convict them on. Good luck, however highly improbable, is not prima facie evidence of a crime. I don't think a judge would let the case come to trial without more evidence.

              This is like investigating any other

          • by Duhavid ( 677874 )
            In short, it's a problem that's not easily solved.


            Maybe if we let the opportunistic "first receivers" get punished along with
            the actual perps, the urge to buy those stocks will go away. Make the
            punishment to lose twice what you gained in the transaction.
            • Re: (Score:3, Insightful)

              by John Hasler ( 414242 )
              What about the people who never saw the spam but purchased the stock for their own reasons? You are assumming that all activity in the stock is related to the scam. This is not true. Many people buy and sell these stocks every day.
          • In other words, if a scammer changes the timing of their purchase to occur after the spam has gone out, large profits could still be realized

            also it wasn't clear from the article, when they say the stocks show activity before the spam message, wether that is triggered by the spammers, or if that is the trigger the spammers use to help cover their tracks.

            IE this could even be triggered by a mutual fund manager that may have held the stock for some time, and just wants to squeeze the last dime out before they

            • by garyrich ( 30652 ) on Sunday January 21, 2007 @07:14PM (#17706214) Homepage Journal
              Mutual fund managers are almost never empowered to trade the "pinks". Plus why would they bother risking their $$$$$ jobs for a 5% profit? Part of the reason they can't/don't is that you just can't put large amounts of $ to work in these stocks. Even if they truly loved some penny stock and thought it would be the next microsoft - you can't invest even as little $10M in a company with $50M market without totally distorting the market - easier to just do a buy out the company of you like it that much.

              In theory you could write a few lines of java/lisp/perl into your favorite automated trading platform and seek out the patterns of the spammers taking their position before they start pumping. That is, if they traded on some "real" exchange you could. In the "pinks sheets" there are no market makers, frequently no level 2 quotes, etc. Not enough data to easily find the patterns. As others have pointed out, this is also what makes it hard to prosecute the pumpers, they data trail is just too thin.
        • by Kalriath ( 849904 ) on Sunday January 21, 2007 @06:55PM (#17706084)

          It's the people who buy before the spam goes out and sell right after (probably even same day) that you would target. Only the people behind the spam have advance knowledge of when the pump is going to occur. Plus, anyone doing this is doing more than one, so there'll be a pattern of this activity proving it can't be a fluke.
          Except that, from where I see it, those dodgy companies such as "Impex Consult Financial" offering you a part time job "as a financial consultant working with private individuals" are really offering you a job accepting the funds from Pump and Dump scams and forwarding them on via Western Union (untraceable!) to the REAL criminals. What, you thought they were JUST money launderers? I find that unlikely.
      • Re: (Score:3, Insightful)

        by Who235 ( 959706 )
        By the time they are spamming you about it, the pumping has already pretty much happened.

        You're the dump part.

        I assure you, you can try to buy those stocks, but you won't make money.
        • Re: (Score:3, Interesting)

          by Fordiman ( 689627 )
          Ok, here's the thing:

          If you get the e-mail, and are interested, would you not look at the stock history? You know it's a pump-and-dump scam, and if the stock's gone up in the last, say, day by, say, 5%, would you bother to do it, knowing that the pump has already occurred?

          On the other hand, if the stock HASN'T moved in the past few days, is it ethicaly OK to jump in, and right back out when it reaches a 5% increase?
          • by Who235 ( 959706 ) <secretagentx9@ c i a . com> on Sunday January 21, 2007 @07:00PM (#17706110)
            Is it ethically OK? Well I think you and I know the answer to that - it depends.

            If you have money to play around with, I think a better idea would be to determine how the spammers select stocks that look like good pump and dump opportunities and buy into a few of them before they get selected in the hopes that they will someday be pumped. There has to be some relatively simple algorithm they use which accounts for price, trade volume, etc. . .

            That way, you wouldn't really be a part of the plan, but you could profit from it passively with little or no possible criminal liability. It could just be a part of your normal investment system.

            Does a spam email that is obviously a pump and dump scam expose you to any liability as a co-conspirator, say, if you follow up on it? How do people know you weren't following what you thought was a legitimate tip? And how about the companies involved? What happens to them when they see a huge stock price increase that blows away in a month? What kind of havoc does that wreak on the employees of that company?

            Anyway, I think the best idea is to ultimately leave the whole thing alone. Let Spam Assasin do its job and don't get too curious about the shit that ends up in you Junk folder. You can't cheat an honest man as they say, so the best defense is probably to use your instincts and steer clear.
               
            • by rstultz ( 146201 ) on Sunday January 21, 2007 @08:11PM (#17706580) Homepage
              I'm pretty sure it's much simpler than you think to figure out the "algorithm." I thought about this last fall, and looked at two stocks that made it through my filter. One had an approximately 8 day cycle and the other had something like a 17 day cycles. It wasn't exact, but over the previous 6 months it was pretty steady, every 6-10 days on the first stock and every 15-19 days on the other one. I didn't check it to a calendar all the way back, but it seemed the variation was due to weekends.

              I seriously considered trying to beat the spammers, buy the day before they were buying, sell at the high.

              That is until I talked to my attorney friend, who convinced me the risk wasn't worth it, that if you did get investigated for doing this, you'd have to work pretty damn hard to convince them that you had nothing to do with the Pump and Dump scheme, and that it was a grey area if you can profit off a pump and dump (even if you had nothing to do with it).

              I still think it's a good idea.

              Ryan Stultz
    • Really, this should be the easiest to crack. Someone has to take the money. Or some company which then turns it over to some person. The SEC should be busting these left and right.

      Just have your spam company send your front company the spam first and you can claim that you merely had the good fortune of being at the top of the spammer's list.
      • by Feyr ( 449684 )
        i dont think this would work.you're still knowingly participating in a fraud, even if you didnt initiate it.

        proving it is another game, but it's still a crime
    • by pla ( 258480 ) on Sunday January 21, 2007 @05:01PM (#17705150) Journal
      Really, this should be the easiest to crack. Someone has to take the money. Or some company which then turns it over to some person. The SEC should be busting these left and right.

      Except, you've missed the point on the very reason these scams do make money - Because people buy these stocks realizing them as pump-n-dump scams, hoping to trade out in time.

      Pretty easy, actually...

      1) Get stock spam
      2) See if the price has gone up in the past week. If so, forget it. If not, continue o step 3
      3) Buy a few thousand shares
      4) Watch the price carefully.
      5) The second it starts going up, sell sell sell! Don't try to time it for best profit, dump ASAP.
      6) Profit!


      So, by "following the money", they'd potentially catch honest traders as well as those running the scam.
      • Re: (Score:3, Funny)

        by ThisNukes4u ( 752508 ) *
        1) Get stock spam 2) See if the price has gone up in the past week. If so, forget it. If not, continue o step 3
        You could also short the stock at this point...
        • by Chris Mattern ( 191822 ) on Sunday January 21, 2007 @10:07PM (#17707234)
          >> 1) Get stock spam 2) See if the price has gone up in the past week. If so, forget it. If not, continue o step 3
          >
          > You could also short the stock at this point...

          You've just sent anybody who understands stocks into gales of laughter. You don't understand how shorting a stock works. Shorting a stock requires that you borrow shares from a broker who has shares available to be borrowed. You then sell the shares and leave the money with the broker as collateral for the borrowed shares, plus a little more out of your own pocket as margin. If the stock goes up, you must supply the broker with more collateral money (that's called a margin call). When you decide to close out the short, or if you're forced to by a margin call when you don't want to come up with more cash, you buy the stock, give it to the broker to replace the borrowed shares, and reclaim your money. All this depends on a broker having shares he's willing to let you borrow. The chances of scam penny stocks like this being available to borrow from any broker is absolutely nil. These stocks simply cannot be shorted.

          Chris Mattern
      • For that matter, it would also catch people who had bought the stock as a legitimate (though probably poor) investment months or years ago and have had a pending limit order in place the whole time, one which finally got filled by coincidence during the pump.

  • by PHAEDRU5 ( 213667 ) <instascreed@gm[ ].com ['ail' in gap]> on Sunday January 21, 2007 @04:43PM (#17704994) Homepage
    After reading the paper, I'm inclined to work up a little trading program that starts polling finance.yahoo.com as soon as I get a pump-and-dump spam e-mail, and buys/sells at a statistically predicted top.

    I mean, the paper has about 20 pages of analysis, a couple of pages of references, and, what?, something like 15 pages of statistics. More than enough to start working a model.
    • by Jerf ( 17166 ) on Sunday January 21, 2007 @04:58PM (#17705120) Journal
      I consider it a distinct possibility that that is actually the end-game of these spams, and it will eventually kill them.

      If a couple of people do what you describe, they will be feeding from the same trough as the image spammers, taking the same profits, scamming the same people. This will decrease the utility to the image spammers, because they'll be doing all the work but only getting some fraction of the gains. Eventually, they're likely to give up.

      It's entirely possible this will settle into a steady-state of "no stock spam", since it will cease to be a big gain for any particular person and anybody can get in on the fun.

      I'm in no hurry because even disregarding legality issues, some or all of these people will eventually be burned. But it might work for a bit.
    • by oliderid ( 710055 ) on Sunday January 21, 2007 @05:37PM (#17705440) Journal
      Spammers bought stocks days/weeks before they sent their spam. The spammer will sell you these stocks. You will help them to "leave" the market.Even if you manage to make any profits (and I seriously doubt you could...Because you will be the "top"), it will be thinner than these 5.00% of return. Their pump & dump lifecycle is extremely short. You have to be the source to enjoy any profit.

      There are plenty of other ways to make better e-investment.
      My name is Kikon Vizirmarabu. I'm an ex-minister of the Nigerian government. I've got US$1.572.000.053 (ONE FIVE HU...ERR...LOTS) and I need a trusted US partner for a special operation. If you are interested please leave me your email.

    • Re: (Score:2, Insightful)

      by mazphil57 ( 792004 )

      starts polling finance.yahoo.com
      You can't trade profitably using delayed quotes (15-20 minutes delay), like at finance.yahoo.com. In some markets, you cannot even afford a two second delay. That's why there are expensive real time quote services.
      • Re: (Score:3, Informative)

        by gbjbaanb ( 229885 )
        in reality, not trading for years is the key to making money - forget the dodgy, daytrading, low cap, high risk stocks, and stick to established ones that pay a decent dividend, have decent cover, forecast growth and you can just forget them for years.

        As a perfect example, read this about a stock tipping newsletter [thebusinessonline.com]

        or, the Story of Doris [fool.co.uk], for further elucidation.
    • Here you go: http://www.johncon.com/ntropix/ [johncon.com]

      However, once you start earnestly analyzing the market, you'll soon realize, that it is not necessary to gamble with penny stocks, since there are enough medium and high cap stocks to work with, for better returns and less risk.
  • by The Mutant ( 167716 ) on Sunday January 21, 2007 @04:44PM (#17705004) Homepage
    I find it hard to believe someone can't track those who benefit from these crimes.

    We have to request permission before we buy & sell pretty much any listed security, just to satisfy our internal compliance people who in turn have to report to The Feds.

    So why on earth is it so hard for The Feds to track who purchases larges quantities of these securities before such solicitations are made, and who conveniently dump shortly before these same shares crash? After all, we're only talking 5% here! There must be large sums of money whizzing about...
    • Re: (Score:3, Interesting)

      by ShooterNeo ( 555040 )
      Well, the Federal government is not world renowned for it's efficiency... But further, there's noise in the signal. I suspect I am not alone here among the slashdotters who are thinking "hmm, how hard would it to be to make money off of this? Just curious...". What if a few of us acted? Just have to buy a few hundred bucks worth of options on stocks that there seems to be a lot of spam about, yet it needs to be still early enough for there to be some action left. Is it illegal to play the game if you ar
      • Re: (Score:3, Informative)

        by The Mutant ( 167716 )
        Point taken about The Feds and efficiency, but also you've got to consider that there aren't any listed options for the Pink Sheet securities these pump'n'dump operators tout.

        Seems like a losing game all around.
        • Eww. a 5% change in stock price is not much potential for profit. Would have to do this year round to make any money (because only doing it, without fail or losing money dozens of times over, would you gradually accumulate wealth 5% at a time)
          • Eww. a 5% change in stock price is not much potential for profit. Would have to do this year round to make any money (because only doing it, without fail or losing money dozens of times over, would you gradually accumulate wealth 5% at a time)

            If you ran one such scam per week making 5% each time on an initial investment of (say) $10000, you would make around $110,000 in profit your first year. Once these guys have their spam bots set up, keeping this scam going would require maybe 30 mins/day.

    • by FallLine ( 12211 ) * on Sunday January 21, 2007 @05:54PM (#17705580)
      I find it hard to believe someone can't track those who benefit from these crimes.

      We have to request permission before we buy & sell pretty much any listed security, just to satisfy our internal compliance people who in turn have to report to The Feds.

      So why on earth is it so hard for The Feds to track who purchases larges quantities of these securities before such solicitations are made, and who conveniently dump shortly before these same shares crash? After all, we're only talking 5% here! There must be large sums of money whizzing about...
      None of these individual spam/scams are for truly "large sums" since they're just trying to manipulate penny stocks. With our current regulatory framework the response to any individual scam would almost certainly cost a lot more than damage of the scam itself. What's more, many of these spammers are actually disclosing their conflict of interest which arguably gives them legal coverage. You also must then factor in that the SEC needs to find these spam emails to actually stop it in time...and to prosecute it they need to discover who is behind it, prove who actually sent it, quite possibly extradite people, etc.

      Of course, if these spammers average one of these scams per week (@~5% return/scam) and re-invest all of their funds in each successive scam, that theoretically adds up to roughly 1200% return/year ... it's fairly attractive, although they'd probably find very much diminishing returns and run into problems as they try to invest too much of their money into any one stock (too illiquid to do it successfully).

      It'd probably just be far more effective to detect these spams and warn the suckers before they trade. In other words, design a system with postini and other anti-spam mechanisms to aggregate these type of spams, parse them, and ***WARN*** the potential buyers (suckers) through etrade and other electronic intermediares (that the unsophisticated buyers are likely using) that they're about to buy a stock that is almost certainly being manipulated (with more than just the typical legalese one sees these days)...
    • by jrumney ( 197329 )

      So why on earth is it so hard for The Feds to track who purchases larges quantities of these securities before such solicitations are made

      They're offshore. There have been warnings in the UK about these scams, which mention that many of the stocks touted in the spams are restricted stocks in the US, and cannot be sold on the US markets but can be sold to unscrupulous and unsuspecting foreigners alike under Regulation S [uc.edu].

  • If you try to anticipate stock movements based on the contents of the spam you receive, you may be investigated by the FTC, since you'd basically be performing the same investments the pump-and-dumpers would be. The information in that spam probably can't be considered public, which means you'd be technically guilty of insider trading.

    I think, at this point, it'd be better to just drop all the rules and let caveat emptor.
    • Re:beware... (Score:5, Insightful)

      by alienmole ( 15522 ) on Sunday January 21, 2007 @04:58PM (#17705130)
      The information in that spam probably can't be considered public

      I don't see why not - if it's been sent directly to millions of people's inboxes, how much more public can it be? All you'd have to do to cover yourself is document when you received the email, so you can prove that you only bought after the email went out.

      You can't be guilty of insider trading if you have no connection to the company and no source of real inside information. This spam is never based on real inside info.

  • Just because the officers at SCO haven't added this fine reading to their Amazon wish lists doesn't mean they wouldn't appreciate a few thousand copies!!!
  • by Rosco P. Coltrane ( 209368 ) on Sunday January 21, 2007 @04:46PM (#17705028)
    Regardless of the type of spam, there is spam because spammers make money out of it. To be a successful spammer, you need:

    - A half-convincing scheme
    - Half-witted people gullible enough to be conned

    To get rid of spam, get rid of the half-witted people. It shouldn't be that hard to educate computer users and explain to them that nobody will ever contact them to help them better their lives, just like nobody pop out of the blue and make their lives better in real-life. It's so simple even idiots can grasp the concept, and I fail to understand why nobody ever launched an educational campaign to explain this.

    Once too few people respond to spam, then spamming isn't profitable anymore and spams disappear. The only true solution to the spam problem is a basic lesson in electronic social relationship.
    • by Joebert ( 946227 ) on Sunday January 21, 2007 @05:02PM (#17705164) Homepage
      The problem with that, is that there's millions of middle-low class citizens in the world that are fully aware they will never have the things of thier dreams without taking a chance now & then.

      Spam like that is successfull for the same reasons lotterys are successfull.
      Not because people don't know, but because they're prone to greed.
    • I disagree. I believe the only way to kill spam is to find something that pays more per hijacked computer than sending spam.

      Moreover, spam is profitable because hijacked computers are cheap. If half of the zombies out there were used for another purpose, not only would this half not be sending spam, but they'd make the other half more expensive to hire (i.e. they'd reduce the ROI of spamming).
      • by HappyEngineer ( 888000 ) on Sunday January 21, 2007 @05:53PM (#17705562) Homepage
        So you're saying that someone should write a virus that installs Folding@Home on computers and sets CPU usage to the highest possible so that any other viruses on that computer are starved for CPU cycles?

        Actually, that has a number of positive side effects:
        1. The computer will be so slow that the user will have to realize that something is wrong with their system. A normal virus wouldn't monopolize the system because they don't want to alert the user. If they realize something is wrong then they'll either live with it or they'll fix it and perhaps learn something about security in the process.
        2. The computer has a security hole in it (either a technical one or a human one), so they'll get infected eventually. Might as well have their computer being used to fold proteins for medical research rather than send out spam.

        Where are the white hats when we need them?
  • Makes me wonder, if you shorted a stock that's being touted in a spam run, would that be considered insider trading?
    • pretty sure insider trading is not the law to worry about breaking in this situation, their is certainly some other laws to worry about.

      http://en.wikipedia.org/wiki/Insider_trading [wikipedia.org]
      you wouldn't be guilty of insider trading unless there was some closer connection between you, the company, or the company officers.

      insider trading reqires at least a indirect benefit to a high level person within the company.
  • I've bought stocks for any number of reasons. For instance, buying stock in DRAM makers when a new version of Windows was about to be released (but not this time). Anyway, I can't imagine investing in a stock on the recommendation of some spammer. You've got to figure that at some point, the spammers will exhaust the pool of fools with cash.
  • by heretic108 ( 454817 ) on Sunday January 21, 2007 @05:00PM (#17705144)
    It could be possible to make a steady fortune from pump'n'dump.

    Here's how it would work - Write an app to model the behaviour of pump'n'dump stocks. Each time a pump spam comes in, enter the ticker symbol into the app. The app would then pull the current quote and some recent history through a yahoo finance API, then monitor the price in the background. The app would also need the original email, so it can perform some classification based on email headers, type of spam (image, text etc), time of day, sender IP address and subnet etc.

    When the database starts to populate, set up a few genetic algos to paper trade.

    It's possible that the genetic algos, before long, will start generating reliably good forecasts and recommendations, eg "buy immediately, sell if it drops 1%, sell if it gains 2.2%", and the paper trading will start heading clear north. That would be the time to jump on with real $$.

    When the app is tuned well, someone with a few tens of thousands could make a reliable 50% return or more per year, by taking small salami slices from a large number of pumped stocks. Sadly, these slim margins would exclude smaller investors, since the trade fees would eat up all the gain.

    It all depends on when you receive each given pump spam. If you get it early in the mail-out cycle, you can win, just so long as you get a return and sell well clear of the dump. If you get it late in the mail-out, you could short it instead. If you can't reliably determine where you are in the spamming mailout cycle, the returns would be tighter or nonexistent. The app could guess your position in the mailout cycle by determining how much growth happens, and how long it takes for the dump, after you receive the pump.

    • Re: (Score:2, Insightful)

      by ericrost ( 1049312 )
      And at the amounts where you'd make any money over commissions/fees the stocks will be too thinly traded and you'll lose your ass by driving the price up as you buy and down as you sell. This (I'm sure) is why the spammers choose nothing stocks. There's ABSOLUTELY nothing that anyone can do in the market to make money with them. Remember, you have a finite amount of shares, and a finite demand. If you're trying to pull too many shares off the market, the price goes north.
    • by synaptik ( 125 ) on Sunday January 21, 2007 @05:26PM (#17705354) Homepage
      My experience is that the pumping emails are sent out after the market closes for the day, and usually on a Friday at that. They are counting on retail investors (read: in-duh-viduals) to place orders with their broker at night after getting home from work, or over the weekend. So, the pop on the next trading day is quite frequently an instantaneous "gap up", or happens within a matter of a few minutes. Good luck catching that wave.

      And since the stocks being pumped are generally pink-sheet material, its tough to find shares available for borrowing, for the purpose of shorting. The pumpers intentionally pick illiquid stocks, because illiquidity (a) amplifies the effect of their pumping efforts, and (b) limits the ability of shorters to attenuate their pump & dump profits. (In this respect short sellers are like positive reactance in an AC circuit.)

  • by Kanasta ( 70274 ) on Sunday January 21, 2007 @05:07PM (#17705204)
    deserve to lose their money. They won't forget that lesson again.
    Give it a few years, it'll go the way of nigerian spams.
  • Supposedly, people who invest into stock bubbles at some point mostly know that it is going to crash, but they just think that they can sell to a greater fool and get out in time. These investments tend not to end well.

    These pump and dump scams also sound like a greater fool theory, for everyone except for the spammers. I think you would be a fool to invest in a pump and dump stock.

    Now, what if you were the founder of one of these companies ? That might be a tough choice. Sell, and risk investigation
  • by writermike ( 57327 ) on Sunday January 21, 2007 @05:19PM (#17705302)

    Unbelievably, it appears that spammers are able to achieve a 5% gain on pumped stock before dumping it, along with a dramatic increase in transaction volume of the stock.
    Can someone explain this to me? Why would this be unbelievable? If spam is so wide-spread as we believe, then it's certainly going to hit those gambling-types who see the ad and think they can beat the odds and make a small bit of money getting in on the action. I find that quite believable.
  • Unbelievably, it appears that spammers are able to achieve a 5% gain on pumped stock before dumping it, along with a dramatic increase in transaction volume of the stock.

    This tidbit, like the article itself, is interesting but should not be the least bit surprising to anyone with a little common sense and knowledge of the fundamentals (stocks & spam). If anything, I suspect the sophisticated spammers are doing quite a bit better than this. The pump&dump spammers are targeting stocks (OTC/Pink sh

  • by VGPowerlord ( 621254 ) on Sunday January 21, 2007 @05:29PM (#17705372)
    1. Announce to everyone that you own UNIX. Make sure to grab a lot of media attention.
    2. Sue IBM for stealing your code. Make sure to grab a lot of media attention.
    3. Sell off stocks after everyone else buys, but before anyone realizes that you don't actually have any evidence that IBM stole code.
    4. Profit!
  • Caveat emptor (Score:5, Interesting)

    by pkaral ( 104322 ) on Sunday January 21, 2007 @05:33PM (#17705394)
    I assume most will not read the paper, so here is a couple of points to consider before weighing into the discussion:

    * The touting is not illegal in and of itself - most touters are even including disclosures about their own activities (it is, however, one of the authors' recommendations to nail some of them for breach of CAN-SPAM)
    * These are not NASDAQ or NYSE stocks, and don't behave anything like that. Those are unknown, small stocks with very small trading volumes. The touter and the people he is fooling are often making up much of the trading activity in the period around the touting. They are also "penny" stocks, which "tick" in pretty large increments (percentagewise).
    * Consequently, the only people likely to benefit or hurt are the touters and the people who bought into their messages (i.e. no "innocent bystanders")

    It is unclear to me that this is a problem for the regulators, at least not from the point of view of protecting the "victims". After all, people are free to make bad choices and these are not fraud cases (the authors note that this is "investor irrationality"). There is, however, a negative impact on everyone else, because this sustains high spam levels. Probably the "CAN-SPAM direction" is the regulatory way to go, rather than something more specific related to touting of financial assets.

    There is an old saying that goes caveat emptor - Let the Buyer Beware.
    • Re: (Score:3, Insightful)

      by GigsVT ( 208848 )
      The company itself is an innocent bystander.

      The spammer buys in, driving the price up. They then sell against some of the early suckers, who are left holding the bag. By this time the price has probably started falling already. Then the suckers eventually wise up and start selling, against the very thin market, which can depress the price even further.

      It's entirely possible for a stock to wind up a lot lower than it started out after one of these schemes hits it.
    • Re: (Score:3, Insightful)

      by benzapp ( 464105 )
      You're forgetting who this DOES hurt: the companies that are small and are trying to raise capital.

      These pump and dump scams are a major reason why the uber-corporations stay in power, it is VERY VERY difficult to get money if you start a small corporation. All it takes is to be targeted by one pump-and-dump con artists, and your company is ruined.

      This does ruin people's lives, and does affect our society and civilization negatively.
  • by gbulmash ( 688770 ) * <semi_famousNO@SPAMyahoo.com> on Sunday January 21, 2007 @05:38PM (#17705456) Homepage Journal
    There's a great page that tracks spammed stocks [crummy.com]. While TFA shows that people who buy in before the touts start arriving make a 5-6% gain, the spammed stock tracker [crummy.com] shows that once the spam starts showing up in inboxes, it's too late.

    The guy's got records going back over 2 years. It's pretty interesting.

    - Greg
    • Re: (Score:2, Informative)

      by GigsVT ( 208848 )
      Because probably, the spammers are causing the majority of the price increase themselves. By the time the spam goes out, the spammer is the one selling, they sell it down slowly.
    • by GrEp ( 89884 )
      It could. If you bought a large diversified portfolio of small caps you could dump them one at a time when the spam hits, and if the spam selloff really hits hard buy them back on the cheap.
  • Doonesbury has a great take on the 419 scammers which works on this. When are we going to be able to invest in mutual funds encompassing all of the pump and dump stocks that we receive in our inbox. Take the legwork out of purchasing penny stocks for all of us :)

    All this does is demonstrate a fundemental flaw in the mechanisms and operation of all stock markets. There are plenty of 'legal' mechanisms that operate in much the same way (half of the UK venture capital market), it's a broken system, it needs
  • So, if I get one of these before the stock starts to climb I should buy and expect to make about 5%?

    Is that legal? Is it different than the dupes who buy it? I guess they don't dump fast enough....

  • Just what we need: more laws!

    For once, I'd like to see a problem for which someone says, "We could create a law to address this... but instead we'll just inform people that the problem exists and let law enforcement stick to real crimes."
  • Jim Cramer rules (Score:3, Insightful)

    by heroine ( 1220 ) on Sunday January 21, 2007 @06:44PM (#17705978) Homepage
    Everyone loves Jim Cramer because he's a celebrity, be he's the biggest stock pumper of all.
  • by Kjella ( 173770 ) on Sunday January 21, 2007 @06:52PM (#17706056) Homepage
    ...on a lottery with no winners, it's as simple as that. How do you know that there are actual winners in a lottery? If it wasn't for regulation, you'd have a paid actor up there saying he won $10mio while they actually just pocketed the money. People think the game is to find the right stock, which is sort of true but stocks aren't equal like two lottery tickets. Spamvertized stocks are like buying last week's lottery tickets, but people don't see that they're set up to be losers. They only know that you could get rich on the stock market, and they're putting money on the stock market and so they could get rich. And if it doesn't turn out well, then it was the wrong stock to put money on. Better check the inbox for more lottery offers.
  • by JRHelgeson ( 576325 ) on Sunday January 21, 2007 @07:12PM (#17706186) Homepage Journal
    I have a friend who works for one of the big 5 accounting firms as a Financial Securities Auditor. The wife and I had dinner at his house last night. He was telling me that one of the biggest areas of securities fraud that he is seeing right now is the pump-n-dump scams. I thought I understood it all...

    The Phishers will phish usernames and passwords for brokerage accounts, or they will collect the information from personal users by means of a trojan. The criminals log into these accounts and schedule sell orders for whatever stocks they are holding, and schedule buy orders for the penny stock they are going to pump-n-dump. Then they walk away.

    They execute the spam, eager traders read the spam, look at the account and see that volume of shares purchased have been bought up in the past n-hours and they jump in. The pumpers have bought their stock before hand and once the volume peaks, they dump. The account holders whose accounts were compromised are left holding the pumped-dumped stock...

    The criminals are getting GOOD! They don't need to worry about transferring money out of the compromised brokerage accounts, they are stealing the money and laundering it all in the same step.

    The big targets for the brokerage account takeovers are in Tiawan, the targets for the spam are American "day traders". Apparently, the Tiawanese accounts are big targets because all the business deals in China are written according to Tiawanese law, and all securities trading is handled out of there.

    And it should be no big suprise that the criminal organizations behind the whole operations is the Russians.
  • by Animats ( 122034 ) on Sunday January 21, 2007 @10:10PM (#17707254) Homepage

    That paper has been out for a while. I cited it a few weeks ago.

    Key points:

    • The response rate on large scale stock spams, in terms of actual stock transactions, is around 18 in 1,000,000.
    • This isn't a big-money operation. The biggest spam they studied resulted in around $36,000 in transactions. The spammer made maybe 5% of that, and other investors lost about 5% of that.

    With those numbers, it's going to turn out that this is some kid in his parent's basement. It's not a market manipulation problem. It's the buildings full of servers that have to be installed to process all the spam that cost.

  • How to Block It (Score:3, Interesting)

    by KidSock ( 150684 ) on Sunday January 21, 2007 @10:43PM (#17707436)
    All I want to know is how to block it. I've trained spamassassin with probably a hundred of these and they just keep coming. What is the best sa check to catch stock spam?

    The other thing I've been having trouble catching is image spam.
    • "6c822ecf" (Score:3, Informative)

      by ShaunC ( 203807 ) *
      Filter emails with a Message-Id header that contains the string "6c822ecf." Apparently the trojan/zombieware that sends this spew out has that string hardcoded as a part of the Message-Id it generates.
  • by meshko ( 413657 ) on Sunday January 21, 2007 @10:47PM (#17707458) Homepage
    I see two obvious solutions:

    1) Do not allow morons access to the Internet
    2) Do not allow morons to trade stocks

    I vote for the number 1 as it will solve a couple of other problems as well.
  • by Will_Malverson ( 105796 ) on Sunday January 21, 2007 @11:43PM (#17707756) Journal
    On Friday, I got a stock spam, touting some unknown company, in my mail. Not my e-mail, but my PAPER mail. It looked like a much fancier version of a standard stock spam, with charts, graphs, and a huge disclaimer at the bottom saying that they were just promoters.

    This isn't the first one of these I've gotten, either. I got a similar one a few months ago. I can't imagine that stock spam is worth mailing to people via USPS, but apparently somebody can.

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