Securities regulators are warning investors about a new twist on the “pump and dump” stock-fraud scam that uses text messaging on cell phones to tout stocks.
The National Association of Securities Dealers, the brokerage industry’s self-policing organization, issued an “investor alert” Tuesday advising people to ignore such messages with “hot” stock tips on their cell phones.
In so-called “pump and dump” schemes, the perpetrators tout small, thinly traded stocks to investors to inflate the prices and then sell their own shares at a profit. Ordinary investors can suffer losses when the stock prices tank during the share dumping.
During the stock market boom of the late 1990s, the touting often was done by posting e-mails about companies on Internet message boards or with write-ups in financial publications. In recent years, telephones and faxes also have been used.
Last May, the Securities and Exchange Commission filed civil charges in an alleged nationwide fraud scheme that used voicemail messages made to seem like they were mistakenly left on people’s answering machines to pique their interest in stocks.
“The emergence of text messaging offers fraudsters another cheap and easy way to reach large numbers of potential investors,” John Gannon, the NASD’s vice president for investor education, said in a statement. “Now more than ever, investors need to be vigilant about doing their homework before investing and taking the necessary steps to reduce the likelihood of falling prey to these scams.”
A cardinal rule of investing is never to rely solely on information from an unsolicited source, be it a cell-phone text message, e-mail, fax or phone call, the NASD said.
Unwanted text messages can be stopped by registering one’s cell phone number on the national do-not-call list or opting out of third-party offers when setting up cell-phone accounts.
People who receive text messages touting stocks are asked to send the messages to the NASD at regtips@nasd.com