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Common
Stocks
Scams
Although
stock
fraud
and
various
scams
have
been
around
as
long
as
the
stock
market,
since
the
advent
of
the
Internet,
scamming
has
become
almost
as
frequent
as
spamming.
The
purpose
of
this
article
is
to
outline
some
of
the
most
common
schemes,
particularly
on
the
Internet,
and
how
to
avoid
them.
Scam
1:
The
Slot
Machine
I
coin
this
one The
Slot
Machine
since
it
reminds
me
of
a
common
scam
in
Las
Vegas.
I
once
entered
a
downtown
Vegas
casino,
only
to
be
greeted
by
a
change
girl
in
charge
of
a
bank
of
$1
slots.
She
pointed
enthusiastically
to
one
of
the
machines,
stating
that
I
should
play
it
because
it
was
overdue
for
a
jackpot.
When
I
asked
how
she
could
know
such
a
thing,
she
explained
how
she
has
been
watching
it
all
day
long,
and
was
familiar
with
its
paying
cycle
patterns.
It
sounded
reasonable,
so
I
gave
it
a
try.
Meanwhile,
another
gentleman
entered
the
casino,
and
I
watched
the
same
change
gird
lead
him
to
a
different
machine,
telling
him
that
the
machine
was
due
for
a
big
hit.
Ten
minutes
later,
she
led
a
couple
of
women
to
yet
another
machine,
stating
the
same
thing.
Eventually,
every
machine
was
being
played
from
this
girl's
"recommendations."
After
watching
this
routine
for
almost
30
minutes,
one
of
the
machines
finally
paid
(unfortunately,
not
mine).
The
player
promptly
tipped
the
change
girl
rather
handsomely
for
her
sage
advice.
What
just
happened
here?
The
change
girl
had
learned
that
given
enough
time,
any
machine will
eventually
hit
a
jackpot.
By
"recommending"
every
single
slot,
then
sooner
or
later,
someone
was bound
to
win,
and
a
tip
was
highly
probable.
This
same
technique
is
used
repeatedly
for
"stock
picking,"
especially
for
penny
stocks.
The
scam
goes
like
this:
Giving
many
people
as
many
stock
picks
as
possible,
one
of
them
will
eventually
produce
a
large
enough
win
to
make
the
stock
picker
look
like
a
genius.
While
most
of
the
unsuspecting
clients
lose,
a
handful
of
people
are
ecstatic
and
sign
up
for
the
stock
picker's
services.
Don't
fall
for
the
Slot
Machine
scam!
Make
them
prove
their
mettle
with
a
consistent,
universal
track
record.
Scam
2:
Pump
and
Dump
This
one
is
not
only
fraudulent,
it
is
illegal.
But
it
does
occur
all
too
often.
The
scam
goes
like
this.
Someone
finds
a
no-name
stock,
often
a
penny
stock
with
relatively
thin
volume.
The
scammer
buys
many
shares,
and
then
promptly
"pumps"
the
stock
higher
by
hyping
it
up
on
chat
rooms,
spreading
rumours
about
takeovers,
claiming
to
have
inside
info,
etc.
Once
the
stock
is
driven
artificially
higher
from
this "hot
tip,"
the
scammer
promptly
sells
his
shares
for
substantial
profits.
Sometimes,
Pump
and
Dump
is
used
in
conjunction
with
The
Slot
Machine,
but
you
should
recognize
it
when
you
see
it.
Look
for
signs
of
rumour
mongering
in
chat
rooms,
especially
if
the
stock is
a
very
low
priced.
Scam
3:
The
Selective
Star
This
one
of
probably
the
most
common,
and
it
is
a
practiced
by
an
alarming
number
of
stock
picking
services.
What
makes
this
one
particularly
difficult
to
spot
is
that
the
Selective
Star
is
(unfortunately)
used
by
semi
legitimate
sites.
The
scam
is
very
simple,
if
not
subtle,
and
goes
like
this.
Given
a
daily list
of
stock
recommendations,
when
and
if
some
of
them
perform
well,
they
are
published
in
a
"track
record."
The
losers,
of
course,
are
conveniently
omitted.
The
result
is
a
stellar
track
record
of
winners.
What
makes
Selective
Star
so
insidious
is
that
the
published
track
record
is
somewhat legitimate.
After
all,
they
really
did
choose
the
published
winners
in
their
daily
recommendations.
The
problem
is
that
each
winner
could
have
been
accompanied
by
several
losers
from
the
same
list,
which,
of
course,
are
not
published.
There
are
some
variations
of
the
Selective
Star.
One
of
them
is
to
appear
even
more
"honest"
by
publishing
some
of
the
losers,
but
not
all.
In
this
case,
unsuspecting
visitors
are
led
to
believe
that
the
site
must
be
honest,
because
losers
are
shown
as
well.
Avoiding
Scams
There
is
only
one
way
to
avoid
stock
scams,
and
that
is
to
insist
on
a
genuine
track
record,
and
one
that
is
not
in
"hindsight."
If
a
service
makes
bold
claims,
let
them
prove
it
with
a
trial
offer
before
you
risk
your
own
money.
If
no
such
trial
offer
exists,
then
that
should be
a
sufficient
red
flag
to
avoid
such
a
service
altogether.
Click
here
to
get
our
own
trial
offer,
where
trades
are
demonstrated
in
real-time,
never
in
hindsight.
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