Pump and Dump Stocks You Need To Avoid

Pump and dump stocks are frequently penny stocks, OTCBB stocks, but in reality any low liquidity stock could be used. This is why I don't buy low liquidity stocks and definitely never pink sheet stocks. Those of you long time readers who are acquainted with me on a more individual level understand that I was cleaned out of about $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 very perilous world out there folks and you should be well-informed and prepared for the time when a scammer comes knocking at your entrance.

I was researching recent SEC litigation and one such pump and dump stocks rip-off gave me terrifying 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 advertiser, Songkram Roy Sahachaisere, and his company, InvestSource, Inc. for committing fraud while promoting stock of their clients through massive electronic mail 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 give "investor relations services" by pumping various penny stocks in its daily email newsletter, called the "Daily Digest," and by uploading company profiles on its website. From January 2008 to March 2009, InvestSource sent just about 450 emails hyping these penny stocks to over 24 million recipients, receiving clients' stock as compensation.

There's a good chance you got one of their penny stock spam emails.

The complaint centers on seven specific penny stocks that InvestSource touted in which, the SEC alleges, InvestSource made deceptive statements regarding the nature of their compensation on InvestSource's website and in the promotional emails. The defendants also failed to disclose that they were getting rid of the very securities they were recommending investors buy. According to the objection, between April 2008 and March 2009, defendants dumped over 5 million shares of these seven clients through one or more of their roughly 36 brokerage accounts, criminally pulling in profits of at least $276,000.

InvestSource mixed up the format of its Daily Digest, changing the number of penny stocks promoted 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 prediction in positive terms and explicitly or implicitly suggested that stock traders buy the penny stocks of the featured companies.

InvestSource's promotions normally correlated with increases in securities' trading volume. For instance, five of the seven penny stocks at issue in this action (China Forestry, Inc., FIMA, Inc., Heart Health, Inc., New Asia Gold Corp., and Praebius Communications, Inc.) had big increases in trading volume during InvestSource's promotions. Its pumping of PureSpectrum, Inc. was associated with a mammoth increase in price, from $0.14 to $0.42 per share, with a high of $0.77 per share during the hyping.

InvestSource and Sahachaisere did not divulge the payment received or their securities trading in any of InvestSource's email newsletters. Rather, 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 pertinent 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 disingenuous as 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 as it declared 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 securities after several pumps recommending their purchase, and profited thereby; and the statement that InvestSource planned to sell securities before promoting them was substantially false because its practice was to sell securities while promoting them.