Anatomy of a real pump and dump

www.investing-performance.com
www.reverse-merger.info

Anatomy of a Real
Pump and Dump

Disclaimer:
This is not investment advice of any
kind.
You are on your own.
These types of stocks are VERY risky.
You could easily lose all your money.


This data is from
an actual SEC complaint
alleging a $33 million
manipulation of eight small US
companies.


Micro-cap companies are
easier to manipulate
because they have
smaller public float.


The defendants merged Chinese
companies into US public shell
companies in reverse mergers.
The companies changed name and
conducted a reverse split


Large blocks of unrestricted shares
were issued at little or no cost
to nominees, whose names were
being used to disguise
the defendants’ ownership.


This enabled the defendants
to control the entire float
of the issuer’s stock.


At first, there was little or no
trading volume in the stock,
which often traded
at prices below $1.

The defendants, corporate insiders,
or others at their direction, opened
brokerage accounts in the names of
straw parties or nominees and
deposited the public companies’ stock.


Next, the defendants coordinated
the launch of spam e-mail
campaigns touting these
low-priced stocks.

These spam attacks corresponded
with press release campaigns
purporting to announce positive,
newsworthy events that hyped the
public companies’ business.

The spam e-mails contained false and
misleading information and baseless
price projections.
Some of the e-mails contained false and
misleading language concerning
purported acquisitions.

These spam e-mails were intended to
pump or increase the prices of the
securities and/or create demand for the
securities.
These campaigns often created a short-
term spike in volume and price.


Along with, or shortly after,
the spam e-mail campaigns,
the defendants sold all the stock
in these public companies.

Under instructions from the defendants,
the corporate insiders, or others
working on their behalf, one of the
defendants immediately wired out the
entire proceeds of those sales to
foreign bank accounts in the name of
those nominees.

The proceeds were used to pay the
defendants and the spammers.
In some instances, part of the proceeds
was also sent back to the issuer or
corporate insiders, who had concealed
their beneficial ownership and trading
in their respective issuer’s securities.


We now look at
one of these stocks.


To start, the company issued
30,000,000 shares of Stock
to a consultant for
“business restructuring services.”

This increased the
outstanding common stock to
31,162,902,
and the 30 million shares
were 96% of the outstanding
common stock.

Using an invalid SEC filing
for 6,000,000 shares,
the defendants were to sell
5,780,000 shares
in the pump and dump.


The stock was re-listed
on the
Over- the-Counter
Bulletin Board.

The company filed a 10-Q
with the SEC
showing $53 in cash
and a negative net worth
of $10,000.


A spam e-mail campaign
was coordinated
with a press release campaign.

The spam emails falsely said that the
company was to acquire a $75 million
project, that it was in partnership with
a multimillion dollar developer, a
potential agreement with a brake
manufacturer, and had the prospect of
build an auto exhibition center.


The spam e-mail often predicted the
news in the press releases
(“get on XXX
before the news hits. . .”).
The company coordinated 13 press
releases with the spam e-mail.

For 90 days before the spam, the stock
traded sporadically at prices from
$0.00013 to $0.22, volume ranging
from zero to 47,166 shares.
Most of the trading volume was by the
defendants to create the appearance of
trading activity in the stock.


In the two weeks
leading up to the spam e-mail,
the stock only traded 12,200 shares
on two trading days at $0.11 to $0.12.


Here is
the chart


There were
three stages in the trading.

First, up until the spam campaign starts,
the defendants created some trading in
the market that pushed the stock from
virtually nothing to twenty cents on
light volume.
The stock trades as high as 30 cents,
volume 13,524.

As the spam campaign starts,
the stock spikes to 69 cents,
volume is 2,099,473.
As the spam continues, volume is over
5,000,000 shares
and the price closes at $0.20.


Assuming that most of the sell
volume was from the defendants,
their take during this week was
probably over $1 million.


After the spam ends,
the stock still trades
at about ten cents per share,
hundreds of thousands of shares
per day.


By the next year,
the price is down to three cents
and the volume is only
tens of thousands of shares
per day.

This follows the pattern
I describe in my books:
accumulation,
markup
and distribution.

The stock was accumulated by the
insiders at low prices when they
watered the stock and in their early
purchases in the market.
When the spam started the stock was
marked up and then distributed.

What caused the great spike
and the great public enthusiasm
for this stock?
Seeing the great “news” speculators
buy hoping that there is a
“greater fool” to take them out
at higher prices.

Some of these buyers
are day traders
who do not care how high the stock is;
they only care
that the stock goes higher.


The stock rose to a market value of
some $15 million or more at its peak
when in actual fact the company only
had a minimal or negative net worth,
minimal or no revenues,
and little or no cash.


Anyone paying up for the stock
was gambling on the future.
In most of the these stocks,
this future rarely materializes.


Buy stocks that are selling
below their true value,
as I describe in my book
“How to Find a Home Run Stock.”

For more on stock
trading, go to my
website,
www.investing-
performance.com
and

Buy my book
“How to Find
Home Run
Stock”
on Amazon.com

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Anatomy of a real pump and dump

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