Stock scams have been around forever. Through the years, the variety of such scams has been limited only by the ingenuity of the stock scammers.

The classic stock scam is the "pump and dump," which has recently popularized on TV and in films. In the pump-and-dump, a semi-legitimate "brokerage office" quietly buys up a number of stocks in a company that is selling cheap and hasn’t moved for quite some time. A team of "agents" makes cold calls to prospective buyers from readily available lists of investors. These agents then tout the stock for being about to make an explosive move (and they confirm this as based upon "insider information"). The buyer is pestered mercilessly, while at the same time being told that he needs to get in on the action immediately, or he will miss out. When enough patsies have bought, thereby driving up the price of the stock, the scammers sell out and close down their office, leaving their victims stuck holding the bag when the stock’s value drops back to its real worth.

The Internet has made an easier variation of the pump-and-dump. The majority of stocks have a "message board," on which those following the companies are able to post news, opinions, and general information. Scammers who are on the lookout to make a quick buck have been known to use such boards to post messages touting the company’s prospects, often posing as corporate officers or other insiders. Some use a series of aliases when posting to the board, each more enthusiastic than the last. Once again, the notion is to engineer a rapid rise in the stock’s share price, so that the scammer can then cash out.

Another fraud involves using a kind of coin tossing. The scammer, who alleges having an infallible "system" for predicting the direction of markets, sends out a large number of letters praising his scheme. This was once done by regular mail, using fancy "company" stationery, but, today, email made such matter much simpler, allowing someone to reach millions all at once, rather than thousands. The messenger claims he has the ability to accurately forecast a particular stock index's direction and, to prove it, he gives away his current prediction for free.

What the recipient is unaware of is that the scammer has sent out a large number of alerts which are equally divided between positive and negative. Those who got wrong predictions (the negatives) will never hear from the scammer again. But those who received correct predictions (the positives) get a second one. Once again, they’re divided equally between plus and minus, and so on. After being repeated six or seven times, a small group has received predictions that were correct every time. The scammer, once he has "proven" his accuracy, offers his next prediction, for a price. If the scammer can convince 500 people to pay $500 apiece for a "sure thing," he can easily pocket a quarter of a million dollars. Even better, he can wear that same group down and make even more off those who succeed. (What makes this con interesting is that some of the victims actually make money.)

The latest and cleverest of these is the "wrong number" scam.

According to the SEC, which has filed a complaint regarding this scam, an example of this scam was run between 29-31 August 2004. Whittemore Management, a Dallas-based telemarketer, was hired to exploit a vulnerability in voice mail systems. Known as "voice mail spam," it is a relatively new development. Spammers use the same system that allows customers to check their voice mail to hear their messages. Recipients don’t actually receive a phone call; the message is simply placed in their box for later retrieval.

Whittemore’s mass-mailing employed a young woman with a sultry voice who, seemingly having dialed a wrong number, left a message sounding like this: "Hi, it’s Marie. Since you missed out on the last one, I just wanted to let you know that the broker guy I’m going out with is getting ready to do another one of those promotions. You remember what happened last time? Anyway, this one is a company doing some sort of free long distance and it’s called Yap International, Y – P – I – L, and if you want to get in on it before it takes off you have to do it tomorrow. Right now, it’s at sixty and I think it’s going to go up six bucks or something outrageous. You don’t want to miss this. Talk to you again soon. ’Bye sweetie."

Yap, a Vancouver-based Voice Over Internet Protocol (VoIP) company that is listed on the pink sheets, traded at $.68 on volume of 7,400 the day prior to when the messages went out. Three days later, the price topped at $1.00 on volume of more than 300,000. (The company, which has not been accused of any wrongdoing, changed its name to Nomad International.)

This is not the last word involving stock scams. Future advances in technology will surely generate schemes yet unimagined. But for the time being investors should always be wary. The old adage, "if it sounds too good to be true, it probably is," still applies.

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