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Articles
Pump-and-Dump
by Jason Kelly
01/07/2002
NOTE: This is an excerpt from The
Neatest Little Guide to Do-It-Yourself Investing. See
page 25.
"The
internet has made suckers of a lot of people," says Gary Halford
of Bay City, Michigan. "Everybody watched tech company stocks
go crazy and then heard you could find out about them online.
But they usually got stock market dot con. In discussion forums
and offbeat research sites I see more pump-and-dump than solid
information."
Pump-and-dump
is when a thinly-traded stock that's usually held by a few
people is touted across the internet so other investors learn
of the great opportunity and pile in. That's the pump. The
sudden demand drives the stock price higher, at which point
the pumpers turn around and sell at the high price for a quick
profit. That's the dump. Gary understands this technique well
because it snagged him.
"I read
on a message board that a company called Uniprime Capital
found the cure for AIDS. That was in July 1999 and shares
were trading for around $6.50. I thought it was quite a bargain
for a company that cured AIDS so I sold some of my big company
stocks and bought 1200 shares for $7800."
Today
it's worth twenty bucks. Uniprime ended up being a Las Vegas
car dealership with a cutting-edge AIDS research subsidiary
under the label "New Technologies & Concepts." New Tech
& Con -- emphasis on the con -- was headed by Alfred Flores,
the main force behind a series of false press releases announcing
the miracle cure. Flores is not your typical medical researcher.
During the time of the breakthrough discovery, he was in a
Colorado prison for conspiracy to commit murder. Other than
that, Uniprime was clean as a whistle.
Add this
tip to the hundreds you glean from these pages: be skeptical
of medical miracles originating in prison.
Gary
learned his lesson. "Whenever I see a stock idea, I conduct
thorough research. I didn't know anything about Uniprime except
what I read on the message boards. Greed got the best of me
and I paid the price. But I also wisened up. Now, if I haven't
read a company's financials, I'm not interested. People online
can check financials at the 10-K
Wizard."
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