For most people, once they get an email address, it does not take very long before they receive unsolicited email messages – commonly known as spam. For more info about SPAM follow this link to the Federal Trade Commission. What starts as a trickle eventually turns into a torrent. For example, here at Strongtower our spam service blocks close to 97% of all the email that we receive! Even with properly configured blocking software there is always one or two that get through.
The content of these messages vary but here at Strongtower Financial we are particularly concerned about messages that purport to give financial advice or offer financial opportunities. We want our clients to be well educated in this area so they can avoid significant problems and possible financial hardship for themselves and their families.
The Hot Stock Tip (AKA Pump and Dump)
A very common spam message is the "hot stock tip." Normally, the message tells you about a company that has an announcement pending or some other insider tip that will mean its stock price will rise. Normally, the stocks are the type referred to as penny stocks. The attraction of these stocks is that a rise in price of only a few cents constitutes a large increase percentage wise. Imagine buying $10,000 worth of shares at 5 cents each and the share price increases the next day to 7 cents. That 2 cent rise is actually a 40% increase creating a paper profit of $4,000. Sound attractive? It sure does!
However, there are a number of risks inherent in dealing with stocks like this. To begin with the obvious, in the same way that the stock price could increase, it could just as easily decrease. Another issue is that these stocks normally are not very liquid and have very low trade volumes. It is this liquidity that the scammers take advantage of because what you don’t know is that they have ALREADY purchased the stock they are telling you about. If you were to follow through on their advice the mere act of putting up a bid for the stock can cause its price to rise. At this point, the scammers can sell their position for a profit, leaving other buyers to slide back down to the stocks original position (or worse).
A question to ask yourself is, ""Would you normally take investment advice from random people on the street? How is this any different?"
Best practice: Delete.
Contributed by Jeremy White, Information Services Director for Strongtower Financial.
To find out more about protecting your privacy and the latest scams, visit the Federal Trade Commission's website.
To learn more about Strongtower Financial and the investment opportunities we offer, contact one of our Financial Advisors by calling 1-888-378-6683 option 2.