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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.'"
I bet many or maybe even most of the people who start buying the stocks being spammed, buy them in the expectancy that the spamming will make the value of that stock rise.
;)
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.
The only sensible conclusion I am able to draw from this is that it probably will pay of to invest in the spam-filter companies
Really, this should be the easiest to crack. Someone has to take the money. Or some company which then turns it over to some person. The SEC should be busting these left and right.
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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Regardless of the type of spam, there is spam because spammers make money out of it. To be a successful spammer, you need:
- A half-convincing scheme
- Half-witted people gullible enough to be conned
To get rid of spam, get rid of the half-witted people. It shouldn't be that hard to educate computer users and explain to them that nobody will ever contact them to help them better their lives, just like nobody pop out of the blue and make their lives better in real-life. It's so simple even idiots can grasp the concept, and I fail to understand why nobody ever launched an educational campaign to explain this.
Once too few people respond to spam, then spamming isn't profitable anymore and spams disappear. The only true solution to the spam problem is a basic lesson in electronic social relationship.
"A door is what a dog is perpetually on the wrong side of" - Ogden Nash
Correct in theory, but in practice you'd have to find someone willing to lend you the shares to short - after all, the definition of short selling is selling shares you don't own.
Most of these securities, traded on the Pink Sheets, are thinly traded at best. The secondary market is by no means liquid, at least what liquid means when we consider an NYSE or AMEX listed security.
So short selling, while the correct approach, wouldn't be viable in this market.
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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.
I don't see why not - if it's been sent directly to millions of people's inboxes, how much more public can it be? All you'd have to do to cover yourself is document when you received the email, so you can prove that you only bought after the email went out.
You can't be guilty of insider trading if you have no connection to the company and no source of real inside information. This spam is never based on real inside info.
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...
deserve to lose their money. They won't forget that lesson again.
Give it a few years, it'll go the way of nigerian spams.
While you are correct in a sense, you are very wrong. When you pump and dump, volume goes up and its VERY likely you can have a covered short with any of the major brokers because so many of their clients are believing the stock is actually undervalued (due to your pump'n'dump scheme). Covered shorts aren't a problem. Naked shorts would be an awesome thing to have, but are quite illegal ....
Except that you CANT short pink sheet stocks or OTC stocks. Do you even realize that YOUR level of misinformation is EXACTLY what these people are taking advantage of?
If Nalgene water bottles are outlawed, only outlaws will have Nalgene water bottles.
FBI's not doing that. That's the RIAA suing in a civil action.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
I doubt that you can sell short on OTC stocks. On the real market, being able to sell short is not something you can just "do". You need to have a broker that will loan you the stocks. (Selling short works by you saying, "loan me xxx shares of this stock and I'll give them back to you in a few days". You then sell them and then re-buy them at the lower price, and pocket the difference. Or lose massive amounts of money if the stock goes up.) To get the stock loaned to you, you have to have a brokerage account with the ability to buy on margin (and then you can only use a certain percentage of your margin to sell short). Then, you can only short-sell when the stock is not falling (which means you need to plan ahead; you can't just read about a company going bankrupt and then short 10000 shares of its stock).
So it's not just "sell short and profit", it's actually a difficult thing to do, and it's heavily regulated. I don't know how it works for OTC stocks though == if you get a friend to loan you the shares, then you could be all set.
Finally, 5% is a good one-day return (it's a good 6-month return, too), but you need to factor in how much it costs to trade. If it's $0.01 per share to buy (and the same to sell), and the share is priced at $0.03, then your 5% gain becomes a net loss.
So be careful with penny stocks. Your investment strategy is a great way to lose tons of money.
My other car is first.
1. Announce to everyone that you own UNIX. Make sure to grab a lot of media attention.
2. Sue IBM for stealing your code. Make sure to grab a lot of media attention.
3. Sell off stocks after everyone else buys, but before anyone realizes that you don't actually have any evidence that IBM stole code.
4. Profit!
GLaDOS for President 2016! "Well here we are again. It's always such a pleasure." -- GLaDOS, 2011
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.
http://www.investopedia.com/ask/answers/06/otcpin
Bradley Holt
There's a great page that tracks spammed stocks. While TFA shows that people who buy in before the touts start arriving make a 5-6% gain, the spammed stock tracker shows that once the spam starts showing up in inboxes, it's too late.
The guy's got records going back over 2 years. It's pretty interesting.
- Greg
Start a happiness pandemic
If you read your own link you will see the point the parent to your post was making. These stocks are often illiquid, so there is no pool of shares to borrow from and thus short selling is problematic, especially on the short time-frames relevant to such a scam. The poster wasn't saying that short selling of these securities was illegal, but that it was impracticable.
Spend a few bucks and see if you can get a short position on one of these pump and dump penny stocks in a reasonable period of time.
Perhaps the way to get these people is through IRS. It would seem a highly likely proposition that the people running these P&D schemes would not be paying tax. They would more than likely keep detailed records with a nice transactions trail from their brokers and banks as well. Should be a slam dunk if IRS gets in on the game.
Don't tailgate - the end is near!
Everyone loves Jim Cramer because he's a celebrity, be he's the biggest stock pumper of all.
...on a lottery with no winners, it's as simple as that. How do you know that there are actual winners in a lottery? If it wasn't for regulation, you'd have a paid actor up there saying he won $10mio while they actually just pocketed the money. People think the game is to find the right stock, which is sort of true but stocks aren't equal like two lottery tickets. Spamvertized stocks are like buying last week's lottery tickets, but people don't see that they're set up to be losers. They only know that you could get rich on the stock market, and they're putting money on the stock market and so they could get rich. And if it doesn't turn out well, then it was the wrong stock to put money on. Better check the inbox for more lottery offers.
Live today, because you never know what tomorrow brings
Actually, I think the parent (now grandparent) was pretty clear in his/her point:
This is a common misconception, so I thought I'd correct the point. You are absolutely right that it is INPRACTICAL to short pinks or OTC stocks, but, INPRACTICAL is different than CANT, IMHO. I'm not sure if you're reading the same post as me.
Bradley Holt
I have a friend who works for one of the big 5 accounting firms as a Financial Securities Auditor. The wife and I had dinner at his house last night. He was telling me that one of the biggest areas of securities fraud that he is seeing right now is the pump-n-dump scams. I thought I understood it all...
The Phishers will phish usernames and passwords for brokerage accounts, or they will collect the information from personal users by means of a trojan. The criminals log into these accounts and schedule sell orders for whatever stocks they are holding, and schedule buy orders for the penny stock they are going to pump-n-dump. Then they walk away.
They execute the spam, eager traders read the spam, look at the account and see that volume of shares purchased have been bought up in the past n-hours and they jump in. The pumpers have bought their stock before hand and once the volume peaks, they dump. The account holders whose accounts were compromised are left holding the pumped-dumped stock...
The criminals are getting GOOD! They don't need to worry about transferring money out of the compromised brokerage accounts, they are stealing the money and laundering it all in the same step.
The big targets for the brokerage account takeovers are in Tiawan, the targets for the spam are American "day traders". Apparently, the Tiawanese accounts are big targets because all the business deals in China are written according to Tiawanese law, and all securities trading is handled out of there.
And it should be no big suprise that the criminal organizations behind the whole operations is the Russians.
Good security is based upon reality and common sense. Common sense is a function of having common knowledge.
From all the know-it-alls who think that they can 'short' one of these stocks to be on the 'other-side' of the gamble.
People please consider that the posters on Slashdot are NOT very good at trading. Such a lack of knowledge is quite frankly bothersome in a community where so many people analyze everything to the bitter end. Yet, when money is involved everyone thinks they have the secret to making it work right.
Tell me, exactly what brokerage do you use that allows you to short OTC, and .PK(pink sheet) stocks? For the rest of the real world, OTC and PK are legally impossible to short trade legit. One of the exceptions is if you short sell a stock that actually WAS listed and then became de-listed by the exchange it is on. The world of money and finance is as complicated and incomprehensible to most techies, as computers are to most non-techies.
Everyone likes to joke at the person who used the CD player for a cup holder, or cant figure something that comes so easily to you. Then when those people are gone, you make fun of their ignorance. Guess what, any comment about short selling one of these stocks makes YOU the person who gets made fun of when the backs turn. And deservingly so, if you knew how rediculous the comment of 'short-selling' spam stocks was, you would laugh your ass off too. Maybe as much as you did when you first heard the 'CD tray for a cup-holder' joke.
Having fun yet?
Isn't this just a dupe of this "article"?
- RG>
Hey pal, this isn't a pleasantforest, so don't waste my time with pleasantries!
That paper has been out for a while. I cited it a few weeks ago.
Key points:
With those numbers, it's going to turn out that this is some kid in his parent's basement. It's not a market manipulation problem. It's the buildings full of servers that have to be installed to process all the spam that cost.
>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.
I see two obvious solutions:
1) Do not allow morons access to the Internet
2) Do not allow morons to trade stocks
I vote for the number 1 as it will solve a couple of other problems as well.
I passed the Turing test.
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.
That's all well and good and I mostly agree. But... I was the CEO of a public (Pink Sheets) company where I would get calls DAILY from people (and their lawyers) complaining about spam 'pump and dump' faxes and emails being sent to them. I can honestly say that I never knew anything about these spammings. Essentially what can happen is that one or more major shareholders decide to drop a few bucks to increase the value of their holdings. The company never knows but their name is tarnished. I learned the hard way that proving innocence (ie... not knowing nor endorsing) about a pump and dump scheme is almost impossible. Basically, don't assume that a spam email or fax is being sent from the company directly. While there are most definitely scam artists out there (especially on OTC and Pink Sheets!), there are also a lot of very honest businesses who are at the mercy of their less than honest shareholders.
Filter emails with a Message-Id header that contains the string "6c822ecf." Apparently the trojan/zombieware that sends this spew out has that string hardcoded as a part of the Message-Id it generates.
Thanks to the War on Drugs, it's easier to buy meth than it is to buy cold medicine!