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Anatomy of a Real Pump and Dump
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info This data is from an actual SEC complaint alleging a $33 million manipulation of eight small US companies.
www.investing-performance.com www.reverse-merger.info Micro-cap companies are easier to manipulate because they have smaller public float.
www.investing-performance.com www.reverse-merger.info The defendants merged Chinese companies into US public shell companies in reverse mergers. The companies changed name and conducted a reverse split
www.investing-performance.com www.reverse-merger.info
Large blocks of unrestricted shares were issued at little or no cost to nominees, whose names were being used to disguise the defendants’ ownership.
www.investing-performance.com www.reverse-merger.info This enabled the defendants to control the entire float of the issuer’s stock.
www.investing-performance.com www.reverse-merger.info At first, there was little or no trading volume in the stock, which often traded at prices below $1.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info Next, the defendants coordinated the launch of spam e-mail campaigns touting these low-priced stocks.
www.investing-performance.com www.reverse-merger.info These spam attacks corresponded with press release campaigns purporting to announce positive, newsworthy events that hyped the public companies’ business.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info 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 shortterm spike in volume and price.
www.investing-performance.com www.reverse-merger.info Along with, or shortly after, the spam e-mail campaigns, the defendants sold all the stock in these public companies.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info We now look at one of these stocks.
www.investing-performance.com www.reverse-merger.info To start, the company issued 30,000,000 shares of Stock to a consultant for “business restructuring services.�
www.investing-performance.com www.reverse-merger.info This increased the outstanding common stock to 31,162,902, and the 30 million shares were 96% of the outstanding common stock.
www.investing-performance.com www.reverse-merger.info Using an invalid SEC filing for 6,000,000 shares, the defendants were to sell 5,780,000 shares in the pump and dump.
www.investing-performance.com www.reverse-merger.info The stock was re-listed on the Over- the-Counter Bulletin Board.
www.investing-performance.com www.reverse-merger.info The company filed a 10-Q with the SEC showing $53 in cash and a negative net worth of $10,000.
www.investing-performance.com www.reverse-merger.info A spam e-mail campaign was coordinated with a press release campaign.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info Here is the chart
www.investing-performance.com www.reverse-merger.info There were three stages in the trading.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info Here is the chart
www.investing-performance.com www.reverse-merger.info Assuming that most of the sell volume was from the defendants, their take during this week was probably over $1 million.
www.investing-performance.com www.reverse-merger.info After the spam ends, the stock still trades at about ten cents per share, hundreds of thousands of shares per day.
www.investing-performance.com www.reverse-merger.info By the next year, the price is down to three cents and the volume is only tens of thousands of shares per day.
www.investing-performance.com www.reverse-merger.info This follows the pattern I describe in my books: accumulation, markup and distribution.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info Some of these buyers are day traders who do not care how high the stock is; they only care that the stock goes higher.
www.investing-performance.com www.reverse-merger.info 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.
www.investing-performance.com www.reverse-merger.info Anyone paying up for the stock was gambling on the future. In most of the these stocks, this future rarely materializes.
www.investing-performance.com www.reverse-merger.info Buy stocks that are selling below their true value, as I describe in my book “How to Find a Home Run Stock.�
www.investing-performance.com www.reverse-merger.info For more on stock trading, go to my website, www.investingperformance.com and
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