Pump And Dump Stocks Are How Criminals Screw You

By Shawn Tilman...

Pump and dump stocks are regularly penny stocks, OTCBB stocks, but in reality any low liquidity stock can be used. This is why I do not buy low liquidity stocks and undoubtedly never pink sheet stocks. Those of you long time readers that know me on a more personal level are aware that I was scammed out of approximately $10,000 in just such a pump and dump stocks scam in a company called Plasticon that traded on the pink sheets.

It is a extremely treacherous world out there folks and you should be knowledgeable and ready for when a scammer eventually comes banging at your door.

I was studying current SEC legal action and one such pump and dump stocks rip-off gave me dreadful flashbacks from the scam I was a sufferer of.

On July 9, 2010, the Securities and Exchange Commission filed a civil action against a Huntington Beach-based penny stock promoter, Songkram Roy Sahachaisere, and his company, InvestSource, Inc. for committing fraud while promoting stock of their clients through very big electronic message campaigns.

In its objection filed in the United States District Court for the Central District of California, the SEC alleges that Sahachaisere, age 40, and InvestSource provide "investor relations services" by touting a number of penny stocks in its daily email newsletter, called the "Daily Digest," and by posting company profiles on its website. From January 2008 to March 2009, InvestSource sent just about 450 email messages pitching these penny stocks to over 24 million recipients, receiving clients' stock as compensation.

There is a strong likelihood you got one of their penny stock spam emails.

The complaint focuses on seven particular penny stocks that InvestSource touted in which, the SEC believes, InvestSource made ambiguous statements concerning the nature of their compensation 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 stock traders buy. According to the complaint, between April 2008 and March 2009, InvestSource dumped over 5 million shares of these seven penny stocks through one or more of their approximately 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 kind 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 overtly or implicitly suggested that investors purchase the securities of the featured companies.

InvestSource's promotions often correlated with increases in securities' trading volume. For example, five of the seven securities at issue in this action (China Forestry, Inc., FIMA, Inc., Heart Health, Inc., New Asia Gold Corp., and Praebius Communications, Inc.) had considerable increases in trading volume during InvestSource's promotions. Its hyping 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 promotion.

InvestSource and Sahachaisere did not disclose the compensation received or their securities trading in any of InvestSource's email newsletters. In its place, 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" webpage 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 argues that this main disclaimer was materially false and misleading as it stated that InvestSource tried to liquidate securities it received as compensation for its services upon receipt thereof "PRIOR" to performing any services, when, in fact, Defendants sold the securities after several pumps 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 securities while promoting them.

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