Blog : Pump and Dump Spikes With Bull Market

by Ed Zwirn on June 5th, 2013

If you think you're getting more spam email than ever these days, you're probably right. After holding relatively steady for three years, the volume of spam email rose sharply in the first quarter of 2013, according to a report released this week by computer security firm McAfee.

And, according to the McAfee report, much of the spam increase in North America is in fact a side effect of the bull market that prevailed early this year, with spammers using emails to hand out "free" penny stock recommendations. Apparently, these spammers are taking advantage of the public stock mania accompanying the bull market, as neophyte investors try to use penny stocks to cash in on the stock market gains while they see everybody else scoring.

Overall, McAfee said it counted 1.9 trillion spam emails for the month of March, about three times the December level. Of these, many were of the want to hook up for sex? or male size enhancement or You Have a $2 million Nigerian Bank Balance variety. You may laugh at these, but the fact is that these go out by the millions and are likely to produce thousands of suckers willing to buy the product or give out the requested personal information.

The same holds true for penny stock pump-and-dumpers. "Spam promoting pump-and-dump stock schemes was way up this quarter, no doubt riding the recent market wave to appeal to unwary investors seeking higher gains," the report said.

Much like the traffic in "male enhancement" creams, penny stock pump-and-dump scammers offer a benefit too good to be true at a cost that is also too good to be true, but they work, at least for the perpetrators.

As I pointed out in a blog last month, a study shows that a penny stock pump-and-dumper who buys a penny stock the day before unleashing his spam and sells it when the touting is heaviest is likely to earn 4.29% before transaction costs, which is not too shabby when you consider that it took about a day or two to realize this gain.

On the other hand, the suckers who buy the same penny stocks based on these emails end up losing an average 5.5% over the same short period.

The takeaway from all this: You might stand a better chance of satisfaction by emptying your wallet for male enhancement creams than you would by acting on the "free" advice you get from these scammers. While the former may not produce any noticeable result, you can always try to sell the cream to the next sucker, an option that may not be available to you if you buy a penny stock that goes under.