How does stock market spam work?
How do spammers make money?
What are “pump-and-dump” scams?
The only reason people send spam is because they make money doing it. A lot of money. So how do stock spammers/scammers make money?
Most stock spam advertises low-priced “penny stock” shares. These stocks trade at very low volume, and few people are usually aware of their existence. Most are listed on the OTC Bulletin Board or on the Pink Sheets, and there is relatively little financial information available about them.
That doesn’t mean the companies themselves are necessarily dishonest in any way, although some may be. Start-up companies are often small and operate below the radar. But that also makes their share prices easy for disreputable third-party spammers to manipulate.
Here’s how the stock spammers make their money. Before doing any spamming, they buy up a lot of shares in a penny stock—let’s call it “X Co” with ticker symbol XCOM. I can buy, say, 100,000 shares of XCOM for just $1000 if it’s trading at $0.01 (one cent) per share. If I can drive the price up to just $0.02 (two cents) I can double my money. If I can drive it up to just $0.03 (three cents) I can triple my money.
So, after I buy a big load of XCOM shares at one cent each, I send out a massive spam to millions of people. It says something like, “Hey, have you heard the news about XCOM that’s going to be released tomorrow? This stock is going to explode! Get in now and you’ll make a fortune with XCOM!”
The spammers hope that by sending out millions of these messages, they’ll get at least a few recipients of the spam (suckers) to buy in. Since so few people buy penny stocks, even a few new purchasers can drive up the price by a few cents. That’s all the spammer needs: as soon as the price goes up by two or three cents, he’s doubled his money and then he sells his big load of XCOM shares back to the small-time purchasers (the suckers) who are still trying to get in on the game. This drives the price back down to its original level, or even below that level. The spammer has made a bundle; the suckers (you) have lost. The spammer then picks another penny stock (YCOM) and does it all over again. (“Hey, have you heard the news about YCOM?”) That’s why there’s a new load of stock spam every week.
One of the distinctive things about stock spam, as opposed to lottery scams and advanced fee frauds, is that the spammer doesn’t have to identify himself in any way or provide any means of contact. The advance fee fraudster has to give you a contact address to be able to succeed in separating you from your money. The stock spammer, by contrast, is dealing anonymously via the stock market, and so can be especially hard to identify.
Does stock spam make money for the spammers? You bet it does. If it didn’t, it wouldn’t exist. It’s as simple as that.
—The Scam Hunter