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Stock Scams

At the inception of the Internet, no one could have foreseen its power to render information. The information being rendered through the Internet is not always beneficial though. Stock scams, not particular to the Internet, are running rampant because investors are not willing to do their own research.

If not careful investors can easily lose thousands of dollars because of misleading information. Beginning investors, often targets, should specifically watch out for emails containing "great news" about a certain company. These emails usually contain false information. An investor can easily avoid a scam like this by contacting the company's investor relations office. Message boards, another hot spot for scams, are full of people trying to affect a stock a certain way. If the message posted on the board is too optimistic and unsubstantiated (no information is provided to back up their claims) then the writer of the message is probably trying to dupe the reader. Message boards can be helpful though if the investor looking through them is careful and objective.

Stock scams have been around since the beginning of the market and are therefore not specific to the Internet. Viewers of the popular TV show "The Sopranos" are offered with a fairly realistic portrayal of a common stock scam. In the show the character runs what is known as a "pump and dump" operation. Usually during one of the scams, a small group of people buy shares of a stock which has minimal number of shares outstanding and very little volume. These characteristics make the stock very easy to manipulate. After they buy a reasonably large number of shares, they start "advertising" the company to potential buyers. In the show "The Sopranos" the character running the operation owns a brokerage house which touts the stock they are manipulating to customers. After many customers buy the stock, the stock's price begins to surge and the original group of investors dump their holdings (usually doubling their original investment.)

This is just a small look into the vast world of stock scams. Beginning investors are common victims of these operations because they are very gullible. Investors can avoid these "traps" by doing their own research and by being weary of people who offer free advice.

 



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