Anatomy of a real pump and dump

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Shows how a stock market manipulation worked.

Shows how a stock market manipulation worked.

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  • 1. www.reverse-merger.infoAnatomy of a Real Pump and Dump
  • 2. 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.
  • 3. This data is from an actual SEC complaint alleging a $33 million manipulation of eight small US companies.
  • 4. Micro-cap companies are easier to manipulate because they have smaller public float.
  • 5. The defendants merged Chinese companies into US public shell companies in reverse mergers.The companies changed name and conducted a reverse split
  • 6. www.reverse-merger.infoLarge blocks of unrestricted shares were issued at little or no cost to nominees, whose names were being used to disguise the defendants’ ownership.
  • 7. This enabled the defendants to control the entire float of the issuer’s stock.
  • 8. At first, there was little or no trading volume in the stock, which often traded at prices below $1.
  • 9. The defendants, corporate insiders, or others at their direction, opened brokerage accounts in the names of straw parties or nominees anddeposited the public companies’ stock.
  • 10. www.reverse-merger.infoNext, the defendants coordinated the launch of spam e-mail campaigns touting these low-priced stocks.
  • 11. www.reverse-merger.infoThese spam attacks corresponded with press release campaigns purporting to announce positive,newsworthy events that hyped the public companies’ business.
  • 12. 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.
  • 13. 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 short- term spike in volume and price.
  • 14. Along with, or shortly after, the spam e-mail campaigns,the defendants sold all the stock in these public companies.
  • 15. www.reverse-merger.infoUnder 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.
  • 16. 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.
  • 17. We now look at one of these stocks.
  • 18. To start, the company issued 30,000,000 shares of Stock to a consultant for“business restructuring services.”
  • 19. This increased the outstanding common stock to 31,162,902, and the 30 million shares were 96% of the outstanding common stock.
  • 20. Using an invalid SEC filing for 6,000,000 shares, the defendants were to sell 5,780,000 shares in the pump and dump.
  • 21. The stock was re-listed on the Over- the-Counter Bulletin Board.
  • 22. The company filed a 10-Q with the SEC showing $53 in cash and a negative net worth of $10,000.
  • 23. A spam e-mail campaign was coordinated with a press release campaign.
  • 24. www.reverse-merger.infoThe spam emails falsely said that thecompany was to acquire a $75 millionproject, that it was in partnership with a multimillion dollar developer, a potential agreement with a brakemanufacturer, and had the prospect of build an auto exhibition center.
  • 25. www.reverse-merger.infoThe 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.
  • 26. www.reverse-merger.infoFor 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.
  • 27. In the two weeks leading up to the spam e-mail, the stock only traded 12,200 shareson two trading days at $0.11 to $0.12.
  • 28. www.reverse-merger.infoHere isthe chart
  • 29. There were three stages in the trading.
  • 30. www.reverse-merger.infoFirst, 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.
  • 31. 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.
  • 32. www.reverse-merger.infoHere isthe chart
  • 33. Assuming that most of the sellvolume was from the defendants, their take during this week was probably over $1 million.
  • 34. After the spam ends, the stock still trades at about ten cents per share,hundreds of thousands of shares per day.
  • 35. By the next year,the price is down to three cents and the volume is only tens of thousands of shares per day.
  • 36. This follows the pattern I describe in my books: accumulation, markup and distribution.
  • 37. 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.
  • 38. 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.
  • 39. Some of these buyers are day traderswho do not care how high the stock is; they only care that the stock goes higher.
  • 40. www.reverse-merger.infoThe stock rose to a market value ofsome $15 million or more at its peakwhen in actual fact the company onlyhad a minimal or negative net worth, minimal or no revenues, and little or no cash.
  • 41. www.reverse-merger.infoAnyone paying up for the stock was gambling on the future. In most of the these stocks, this future rarely materializes.
  • 42. Buy stocks that are selling below their true value, as I describe in my book“How to Find a Home Run Stock.”
  • 43. www.reverse-merger.infoFor more on stock trading, go to my website,www.investing- performance.comand
  • 44. Buy my book “How to Find Home Run Stock” on
  • 45. www.reverse-merger.infoSubscribe here on YouTube for more free videos and let me know what else you would like to see.