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The Anatomy of Pump n' Dump Stock Spamming
giorgiofr writes "Laura Frieder and Jonathan Zittrain have analyzed pump n' dump spam activity in their paper 'Spam Works: Evidence from Stock Touts and Corresponding Market Activity'. Unbelievably, it appears that spammers are able to achieve a 5% gain on pumped stock before dumping it, along with a dramatic increase in transaction volume of the stock. From the synopsis: ' We suggest that the effectiveness of spammed stock touting calls into question prevailing models of securities regulation that rely principally on the proper labeling of information and disclosure of conflicts of interest to protect consumers, and we propose several regulatory and industry interventions. Based on a large sample of touted stocks listed on the Pink Sheets quotation system, we find that stocks experience a significantly positive return on days prior to heavy touting via spam. Volume of trading responds positively and significantly to heavy touting.'"
As stocks are pumped and dumped, its very possibly that many day traders (not investors) make a pretty penny by exploiting the actions of those who are pumping and dumping.
;-)
For example, if I get a pump and dump spam I can buy it dirt cheap, wait a few hours or days and see it shoot up 2-5% and then at that point I can sell all my shares and make a short sell, which means I can make another 2-5% when the stock returns to its normal value or even lower after people realize they've been pump'd and dumped. Thats potentially a 10% return for a 5% movement
After reading the paper, I'm inclined to work up a little trading program that starts polling finance.yahoo.com as soon as I get a pump-and-dump spam e-mail, and buys/sells at a statistically predicted top.
I mean, the paper has about 20 pages of analysis, a couple of pages of references, and, what?, something like 15 pages of statistics. More than enough to start working a model.
668: Neighbour of the Beast
I find it hard to believe someone can't track those who benefit from these crimes.
We have to request permission before we buy & sell pretty much any listed security, just to satisfy our internal compliance people who in turn have to report to The Feds.
So why on earth is it so hard for The Feds to track who purchases larges quantities of these securities before such solicitations are made, and who conveniently dump shortly before these same shares crash? After all, we're only talking 5% here! There must be large sums of money whizzing about...
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Profiting once, maybe.
Twice, well
Three times? Get the warrants and taps.
This is where "data mining" would come in. You know the stocks, you know who profited, you just have to find the connections. Even if the SEC cannot handle it, the FBI should be able to.
It could be possible to make a steady fortune from pump'n'dump.
Here's how it would work - Write an app to model the behaviour of pump'n'dump stocks. Each time a pump spam comes in, enter the ticker symbol into the app. The app would then pull the current quote and some recent history through a yahoo finance API, then monitor the price in the background. The app would also need the original email, so it can perform some classification based on email headers, type of spam (image, text etc), time of day, sender IP address and subnet etc.
When the database starts to populate, set up a few genetic algos to paper trade.
It's possible that the genetic algos, before long, will start generating reliably good forecasts and recommendations, eg "buy immediately, sell if it drops 1%, sell if it gains 2.2%", and the paper trading will start heading clear north. That would be the time to jump on with real $$.
When the app is tuned well, someone with a few tens of thousands could make a reliable 50% return or more per year, by taking small salami slices from a large number of pumped stocks. Sadly, these slim margins would exclude smaller investors, since the trade fees would eat up all the gain.
It all depends on when you receive each given pump spam. If you get it early in the mail-out cycle, you can win, just so long as you get a return and sell well clear of the dump. If you get it late in the mail-out, you could short it instead. If you can't reliably determine where you are in the spamming mailout cycle, the returns would be tighter or nonexistent. The app could guess your position in the mailout cycle by determining how much growth happens, and how long it takes for the dump, after you receive the pump.
-- In the beginning was the WORD, and the WORD was UNSIGNED, and the main(){} was without form and void...
I assume most will not read the paper, so here is a couple of points to consider before weighing into the discussion:
* The touting is not illegal in and of itself - most touters are even including disclosures about their own activities (it is, however, one of the authors' recommendations to nail some of them for breach of CAN-SPAM)
* These are not NASDAQ or NYSE stocks, and don't behave anything like that. Those are unknown, small stocks with very small trading volumes. The touter and the people he is fooling are often making up much of the trading activity in the period around the touting. They are also "penny" stocks, which "tick" in pretty large increments (percentagewise).
* Consequently, the only people likely to benefit or hurt are the touters and the people who bought into their messages (i.e. no "innocent bystanders")
It is unclear to me that this is a problem for the regulators, at least not from the point of view of protecting the "victims". After all, people are free to make bad choices and these are not fraud cases (the authors note that this is "investor irrationality"). There is, however, a negative impact on everyone else, because this sustains high spam levels. Probably the "CAN-SPAM direction" is the regulatory way to go, rather than something more specific related to touting of financial assets.
There is an old saying that goes caveat emptor - Let the Buyer Beware.
It says in the article that the average gains when you purchase after the pumping has started is -5%. You stand to loose money and support criminals if you buy because of a spam mail.
So you're saying that someone should write a virus that installs Folding@Home on computers and sets CPU usage to the highest possible so that any other viruses on that computer are starved for CPU cycles?
Actually, that has a number of positive side effects:
1. The computer will be so slow that the user will have to realize that something is wrong with their system. A normal virus wouldn't monopolize the system because they don't want to alert the user. If they realize something is wrong then they'll either live with it or they'll fix it and perhaps learn something about security in the process.
2. The computer has a security hole in it (either a technical one or a human one), so they'll get infected eventually. Might as well have their computer being used to fold proteins for medical research rather than send out spam.
Where are the white hats when we need them?
Cow Cube
Thereby they reinforce this strange mafia way of making money and worst of all they make sure that loads of spam will keep on putting even more pressure on the internet.
Here's the thing I don't understand. If a group of people get together and buy the same stock, and tell their friends to buy the stock, so long as none of them are prohibited from doing so due to conflict of interest, where is the illegality? If a group of people get together and buy stock and tell everyone on the Internet to buy it, where is the illegality? If a company IPOs, issues their executive officers stock, and tells investors everywhere to buy their stock, where is the illegality?
Ok, here's the thing:
If you get the e-mail, and are interested, would you not look at the stock history? You know it's a pump-and-dump scam, and if the stock's gone up in the last, say, day by, say, 5%, would you bother to do it, knowing that the pump has already occurred?
On the other hand, if the stock HASN'T moved in the past few days, is it ethicaly OK to jump in, and right back out when it reaches a 5% increase?
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For a site about things like basic rights, Slashdot users sure do like to censor "dissent".
Mainly it's illegal because the rules prohibit it. Obviously there's no natural law that says that you can't pump-n-dump, just as there's no natural law governing any other game that we humans play.
The rule is in place simply because it makes the game fair, fun, and profitable. We could change it if we desired, if we all decided that we wanted our stock markets to be most profitable to spammers.
Fascism trolls keeping me up every night. When I starts a preachin', he HITS ME WITH HIS REICH!
I'm pretty sure it's much simpler than you think to figure out the "algorithm." I thought about this last fall, and looked at two stocks that made it through my filter. One had an approximately 8 day cycle and the other had something like a 17 day cycles. It wasn't exact, but over the previous 6 months it was pretty steady, every 6-10 days on the first stock and every 15-19 days on the other one. I didn't check it to a calendar all the way back, but it seemed the variation was due to weekends.
I seriously considered trying to beat the spammers, buy the day before they were buying, sell at the high.
That is until I talked to my attorney friend, who convinced me the risk wasn't worth it, that if you did get investigated for doing this, you'd have to work pretty damn hard to convince them that you had nothing to do with the Pump and Dump scheme, and that it was a grey area if you can profit off a pump and dump (even if you had nothing to do with it).
I still think it's a good idea.
Ryan Stultz
>There are two things important to a stocks price.
At a public corp where I worked for a while, the only thing I ever observed affecting the stock price was press.
Good news or bad news didn't seem to matter, just that if we were mentioned in the press, the stock went up.
>One is the amount of dividends that the stock pays out at the end of the fiscal year.
Many corporations do not pay dividends at all.
>The other is simple supply and demand.
Curiously, changes in supply don't always affect demand in any way that can be reliably measured.
-fb Everything not expressly forbidden is now mandatory.
All I want to know is how to block it. I've trained spamassassin with probably a hundred of these and they just keep coming. What is the best sa check to catch stock spam?
The other thing I've been having trouble catching is image spam.
On Friday, I got a stock spam, touting some unknown company, in my mail. Not my e-mail, but my PAPER mail. It looked like a much fancier version of a standard stock spam, with charts, graphs, and a huge disclaimer at the bottom saying that they were just promoters.
This isn't the first one of these I've gotten, either. I got a similar one a few months ago. I can't imagine that stock spam is worth mailing to people via USPS, but apparently somebody can.
There's always a way to make money on somebody else's stupidity or misfortune
One of my husband's fellow graduate students was a day trader back in the early days of online stock trading. He'd get up early to watch the first financial report of the day on CNN, then immediately buy all the stocks they recommended. At the end of the day, he'd sell those shares. It was a reliable way to make a profit because enough people were willing to just buy whatever CNN's experts recommended.
Your fantasies contain the seeds of important concepts.