Pump and dump stocks are often penny stocks, OTCBB stocks, but in actuality any low liquidity stock can be used. This is why I don’t buy low liquidity stocks and definitely never pink sheet stocks. Those of you long time readers that know me on a more private level know that I was scammed out of almost $10,000 in just such a pump and dump stocks scam in a company called Plasticon that traded on the pink sheets.
It’s a exceedingly hazardous world out there folks and you should be knowledgeable and prepared for the time when a scammer eventually comes knocking at your door.
I was studying new SEC litigation and one such pump and dump stocks swindle gave me terrible flashbacks from the scam I was a casualty of.
On July 9, 2010, the Securities and Exchange Commission filed a civil action against a Huntington Beach-based penny stock advocate, Songkram Roy Sahachaisere, and his company, InvestSource, Inc. for committing fraud while promoting stock of their clients through vast email campaigns.
In its complaint filed in the United States District Court for the Central District of California, the SEC alleges that Sahachaisere, age 40, and InvestSource supply “investor relations services” by pumping several penny stocks in its daily email newsletter, called the “Daily Digest,” and by uploading business profiles on its website. From January 2008 to March 2009, InvestSource sent nearly 450 emails pumping these penny stocks to over 24 million recipients, receiving clients’ stock as compensation.
There’s a decent possibility you got one of their penny stock spam email messages.
The criticism focuses on seven identifiable penny stocks that defendants pumped in which, the SEC alleges, defendants made misleading statements regarding the nature of their payment on InvestSource’s website and in the promotional emails. The defendants also failed to make known that they were dumping the very penny stocks they were recommending investors buy. According to the complaint, between April 2008 and March 2009, InvestSource dumped over 5 million shares of these seven clients through one or more of their roughly 36 brokerage accounts, unlawfully pulling in profits of at least $276,000.
InvestSource mixed up the format of its Daily Digest, changing the number of penny stocks pumped or the type of information presented, such as a company profile, press release, or alerts about the price or volume of stock trading. InvestSource’s theme, however, did not change: it described its clients and their business forecast in positive terms and clearly or implicitly recommended that investors buy the stocks of the featured companies.
InvestSource’s promotions often correlated with increases in securities’ trading volume. For example, five of the seven securities at question in this action (China Forestry, Inc., FIMA, Inc., Heart Health, Inc., New Asia Gold Corp., and Praebius Communications, Inc.) experienced considerable increases in trading volume during InvestSource’s promotions. Its promotion of PureSpectrum, Inc. was associated with a huge increase in price, from $0.14 to $0.42 per share, with a high of $0.77 per share during the pumping.
InvestSource and Sahachaisere did not make known the compensation received or their securities trading in any of InvestSource’s email newsletters. Instead, each email included the word “disclaimer” and a link to InvestSource’s website. The link took investors to InvestSource’s “main disclaimer” website page, which stated in relevant part: “The companies listed on the ‘Featured Companies’ section of our website MAY have compensated the Company [InvestSource] to be profiled on this website.”
This “main disclaimer” was substantially false and ambiguous because it stated that: InvestSource “may” have been compensated for its services when, in fact, InvestSource or its principal, Sahachaisere, was always compensated.
The “main disclaimer” website page continued, “Such compensation has been or will be made in cash and or issuance of securities of the profiled company. The specific compensation type and amounts that the company has been paid from each respective company is set forth on the transcript box accessible from each respective company page within our site. We may liquidate any securities that we receive as compensation when deemed appropriate to do so, however, we attempt to liquidate such securities upon receipt thereof PRIOR to performing any services for such company.”
The SEC contends that this main disclaimer was substantially false and misleading since it stated that InvestSource attempted to liquidate securities it received as compensation for its services upon receipt thereof “PRIOR” to performing any services, when, in fact, InvestSource sold the penny stocks after several touts recommending their purchase, and profited thereby; and the statement that InvestSource planned to sell securities before promoting them was considerably false because its practice was to sell penny stocks while promoting them.
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