10 CHARGED BY SEC IN ALLEGED BLANK CHECK COMANIES SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges 10 Individuals in Scheme to Sell Stock in Blank Check Companies Secretly Bound for Reverse Mergers
04/16/2015 04:30 PM EDT

The Securities and Exchange Commission today announced fraud charges against 10 individuals involved in a scheme to offer and sell penny stock in undisclosed “blank check” companies bound for reverse mergers while misrepresenting to the public that they were promising startups with business plans.

Blank check companies generally have no operations and no value other than their status as a registered entity, which makes them attractive targets for unscrupulous individuals seeking reverse mergers with clean shells ripe for pump-and-dump schemes.  The federal securities laws impose various requirements on blank check companies to prevent such illicit use.  The SEC alleges that Daniel P. McKelvey of Foster City, Calif., Alvin S. Mirman of Sarasota, Fla., and Steven Sanders of Lake Worth, Fla., routinely evaded these requirements by creating undisclosed blank check companies and installing figurehead company officers while falsely depicting in registration statements and other SEC filings that the companies were pursuing real business ventures under these officers.  Allegedly concealed from the public was the fact that the companies were controlled at all times by McKelvey, Mirman, or Sanders for the sole purpose of entering into reverse mergers with unidentified companies so they could profit from the sales.

“The federal securities laws prohibit the registration and sale of stock in undisclosed blank check companies given their frequent use in perpetrating pump-and-dump schemes,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “We allege that McKelvey, Mirman, and Sanders went to extreme lengths to run an illicit supply chain of undisclosed blank check companies, including the complete fabrication of business plans and installation of illusory executives.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, McKelvey, Mirman, and Sanders collectively developed nearly two dozen undisclosed blank check companies and sold most of them for a total of approximately $6 million in ill-gotten gains.  They were thwarted from further sales when the SEC instituted stop order proceedings last year that led to the suspension of the registration statements of four issuers before they could be further packaged for sale.  The scheme allegedly involved forging or falsifying hundreds of certifications filed with the companies’ SEC filings as well as communications from impersonating e-mail accounts, management representation letters to accountants, notarizations on applications to the Financial Industry Regulatory Authority, and securities purchase agreements used in the sales of the undisclosed blank check companies.

The SEC’s complaint alleges that Steven Sanders’s brother Edward G. Sanders of Coral Springs, Fla., Scott F. Hughes of Duluth, Ga., and Jeffrey L. Lamson of El Dorado Hills, Calif. assisted the scheme by acting as corporate nominees with knowledge of the false business plans, drafting or providing false business plans, or recruiting other nominee officers.  

The SEC’s complaint charges McKelvey, Mirman, Steven Sanders, Hughes, Lamson, and Edward Sanders with violating or aiding and abetting violations of the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws.  The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions as well as officer-and-director bars and penny stock bars.

The SEC’s complaint also names four relief defendants for the purpose of recovering illicit proceeds of the scheme in their possession: Mirman’s wife Ilene P. Mirman, a company managed by McKelvey called Forte Capital Partners LLC, and two companies managed by Steven Sanders named AU Consulting LLC and MBN Consulting LLC.

The SEC additionally charged four other figurehead officers and directors who agreed to settle their cases in separate administrative proceedings: Edward T. Farmer of Sarasota, Fla., William J. Gaffney of Cumming, Ga., Kevin D. Miller of Alpharetta, Ga., and Ronald A. Warren of Peachtree Corners, Ga.  They consented to SEC orders without admitting or denying the findings that they violated the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws.  They are barred from serving as an officer or director of a public company and from participating in penny stock offerings, and they must disgorge ill-gotten gains plus prejudgment interest.

The SEC’s investigation, which is continuing, is being conducted by Jeffrey T. Cook in the Miami Regional Office as part of the Microcap Fraud Task Force. The case is being supervised by Eric R. Busto, and the SEC’s litigation will be led by Patrick R. Costello

SEC ANNOUNCES INDICTMENT OF ATTORNEY FOR ROLE IN SHEME TO MANIPULATE STOCK

FROM:  U.S. U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23154 / December 9, 2014
USA v. Richard Weed, Case No. 1:14-cr-10348-DPW
Securities and Exchange Commission v. Richard Weed, et al. , Civil Action No. 1:14-cv-14099
California Attorney Indicted for Securities Fraud in Scheme to Manipulate Stock of Sports Ticket Broker

The Securities and Exchange Commission announced today that on December 4, 2014, Richard Weed ("Weed"), a partner in a Newport Beach, California law practice, was indicted on eleven criminal charges by a grand jury in the U.S. District Court for the District of Massachusetts in connection with an alleged pump-and-dump scheme that defrauded investors in a Boston-based ticket brokering business. The indictment charges Weed with one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, and nine counts of wire fraud.

The allegations in the criminal indictment stem from the same misconduct underlying the Commission's pending action filed against Weed and two other defendants on November 6, 2014. In that case, the SEC alleges that Weed facilitated a scheme to pump and dump the stock of CitySide Tickets Inc., which he helped structure into a publicly traded company through reverse mergers. Weed created backdated promissory notes and authored false legal opinion letters that enabled Thomas Brazil and Coleman Flaherty to obtain millions of purportedly unrestricted shares of stock in the company. Investors were then blitzed with a false and misleading promotional campaign touting CitySide Tickets as a budding national leader on the verge of acquiring smaller ticket firms across the country and positioning itself as an attractive takeover target for Ticketmaster. As the company's stock price increased on the false hype, Brazil and Flaherty sold their shares to unsuspecting investors for illicit proceeds of approximately $3 million, and Weed was well-compensated for his role in the scheme. Shortly thereafter, the market for CitySide Tickets stock collapsed and the company eventually went out of business.

Weed was originally charged by a criminal complaint and arrested on November 6, 2014. The SEC's action, which is pending, seeks disgorgement of ill-gotten gains plus pre-judgment interest and penalties as well as penny stock bars and permanent injunctions against further violations of the securities laws. The SEC also seeks to bar Weed from serving as an officer or director of any public company.

SEC CHARGES STOCK PROMOTER FOR ROLE IN PUMP-AND-DUMP SCHEME INVOLVING AN AIRPORT SECURITY BUSINESS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a penny stock promoter in Montana with orchestrating a fraudulent pump-and-dump scheme involving the stock of a Northern Virginia-based company that claims to be in the airport security business.

The SEC alleges that Matthew Carley, who lives in Bozeman, Mont., engineered a reverse merger and gained control of free-trading shares of Red Branch Technologies located in Ashburn, Va.  Carley then orchestrated two blast e-mail campaigns promoting Red Branch stock, and he timed the e-mails to coincide with the dissemination of materially false and misleading company press releases touting technology related to airport security and homeland security.  However as Carley well knew, Red Branch had no true business operations and no sales revenue.  Once the promotional campaigns generated dramatic increases to Red Branch’s share price and trading volume, Carley immediately sold several million Red Branch shares for $789,478 in unlawful profits.

Carley agreed to settle the SEC’s charges and be barred from the penny stock industry.

“From behind the scenes, Carley took advantage of unwitting investors by funding and coordinating promotional hype for a company with no real revenues, and he cashed in by dumping his own shares once he created demand for the stock,” said Stephen L. Cohen, Associate Director of the SEC’s Division of Enforcement.

The SEC’s complaint, which was filed in U.S. District Court for the Eastern District of Virginia, alleges that Carley violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.

A parallel criminal case against Carley was announced today by the U.S. Attorney’s Office for the Eastern District of Virginia.

The settlement with the SEC, subject to court approval, would bar Carley from participating in any future penny stock offering and permanently enjoin him from future violations of the antifraud provisions.  He is liable for disgorgement and prejudgment interest of $921,232 that he is anticipated to pay as part of his obligations in the criminal case.

The SEC’s investigation, which is continuing, is being conducted by Christopher R. Mathews and supervised by J. Lee Buck II.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of Virginia, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

ATTORNEY SENT TO PRISON FOR ROLE IN PUMP-AND-DUMP STOCK FRAUD

FROM:  U.S. JUSTICE DEPARTMENT 
Friday, December 5, 2014

Attorney Sentenced to 17 Years in Prison for Multi-Million Dollar Stock Fraud
A California attorney was sentenced to serve 17 years in prison today in the Southern District of Florida for operating a five-year, multi-million dollar market manipulation and fraud scheme, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.

Mitchell J. Stein, 53, of Hidden Hills, California, was convicted by a jury on May 20, 2013, of conspiracy to commit mail and wire fraud, three counts of wire fraud, three counts of securities fraud, three counts of money laundering, and one count of conspiracy to obstruct justice.  In addition to the prison sentence, U.S. District Judge Kenneth A. Marra of the Southern District of Florida ordered Stein to forfeit $5.3 million.  Restitution will be determined at a later date.

“Lawyers for companies are supposed to guide their clients through the important reporting and regulatory requirements that ensure the integrity of our financial markets,” said Assistant Attorney General Caldwell.  “Stein abdicated his responsibility, and instead abused his position of trust to defraud a public company, its shareholders, and the investing public of millions of dollars.”

“The ‘pump and dump’ scheme orchestrated by Stein and his co-conspirators was extremely elaborate,” said U.S. Attorney Ferrer.  “In an effort to conceal his fraudulent financial scheme, Stein falsely testified before the SEC and used his position of trust to arrange for others to do the same.  The sentencing announced today underscores the department's commitment to hold liable those individuals who profit from manipulating the financial markets and violating securities and other laws that are intended to protect investors and markets.”

According to evidence presented at trial, Stein’s wife held a controlling majority interest in Signalife Inc., a publicly-traded company currently known as Heart Tronics that purportedly sold electronic heart monitoring devices.  While acting as Signalife’s outside legal counsel, Stein engaged in a scheme to artificially inflate the price of Signalife stock by creating the false impression of sales activity at the company.  Specifically, the evidence at trial showed that Stein and his co-conspirators created fake purchase orders and related documents from fictitious customers, then caused Signalife to issue press releases and file documents with the Securities and Exchange Commission (SEC) trumpeting these fictitious sales.  Evidence at trial also proved that in a further effort to create the false appearance of sales activity, Stein arranged to have Signalife products shipped to and temporarily stored with an individual who had not purchased any products.

Evidence at trial further proved that Stein disguised his selling of Signalife stock at artificially inflated prices by placing shares in purportedly blind trusts, and having a co-conspirator sell the shares after Stein caused the false sales information to be disseminated to the public.  Stein also caused Signalife to issue shares to third parties so that those third parties could sell the shares and remit the proceeds to Stein.  From one co-conspirator alone, Stein received illicit gains of over $1.8 million from those sales.

In addition, evidence at trial proved that Stein conspired to obstruct the SEC investigation into Heart Tronics by testifying falsely and arranging for others to testify falsely in an effort to conceal the fraud scheme.

This case was investigated by the U.S. Postal Inspection Service, with assistance from the Office of the Special Inspector General for the Troubled Asset Relief Program.  The SEC referred this matter to the Justice Department, conducted a parallel investigation resulting in a civil enforcement action against Stein and others, and provided substantial assistance in this investigation.  The Financial Industry Regulatory Authority’s Criminal Prosecution Assistance Group likewise provided substantial assistance in this matter.    

This case was prosecuted by Assistant Chief Albert B. Stieglitz Jr., Assistant Chief Kevin B. Muhlendorf, and Trial Attorney Andrew H. Warren of the Criminal Division’s Fraud Section and Assistant Chief Darrin McCullough of the Criminal Division’s Asset Forfeiture and Money Laundering Section.

SEC CHARGES 3 STOCK PROMOTERS IN ALLEGED PUMP-AND-DUMP SCHEME

FROM:   U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged three penny stock promoters with conducting pump-and-dump schemes involving stocks they were touting in their supposedly independent newsletters.

The SEC alleges that Anthony Thompson, Jay Fung, and Eric Van Nguyen worked in coordinated fashion to gain control of a large portion of shares in the stock of microcap companies and then hyped those stocks in newsletters they distributed to prospective investors.  After creating demand for the stock and increasing the value, they sold their holdings at the higher prices and earned significant profits.  Once they stopped their promotional efforts, the demand for the stocks subsided and the prices dropped, leaving investors who had purchased the promoters’ shares with significant losses.

According to the SEC’s complaint filed in federal court in Manhattan, the newsletters published by Thompson, Fung, and Van Nguyen misleadingly stated that they “may” or “might” sell shares they owned when in reality their intentions always were to sell the stocks they were promoting.  In fact, in some instances they already were selling the stocks to which they were saying “may” or “might” sell.  They also failed to fully disclose in their newsletters the amounts of compensation they were receiving for promoting the stocks, cloaking the fact that they were coordinating their promotion of the penny stocks to deliberately increase the prices and dump their own shares.

“Investors should be very wary of penny stock promotions like these, which promise quick and vast riches to those who are purportedly lucky enough to invest,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “In this case, the promoters violated a specific legal requirement that they accurately disclose all compensation they were receiving for promoting the stock and the fact that they were simultaneously selling the stock while urging the investing public to buy it.”

According to the SEC’s complaint, the three promoters conducted five separate schemes that resulted in more than $10 million in ill-gotten gains.  The penny stocks they manipulated were Blast Applications Inc., Smart Holdings Inc., Blue Gem Enterprise Inc., Lyric Jeans Inc., and Mass Hysteria Entertainment Company Inc.  Thompson, who lives in Bethesda, Md., distributed several electronic penny stock promotion newsletters with such names as FreeInvestmentReport.com and OxofWallStreet.com.  Fung, who resides in Delray Beach, Fla., distributed his newsletters at such websites as PennyPic.com, and Van Nguyen was typically based in Canada and distributed electronic penny stock promotion newsletters on such websites as UnrealStocks.com and InsanePicks.com.

“Thompson, Fung, and Van Nguyen repeatedly staged coordinated promotional campaigns to manipulate stock prices and score their own paydays while defrauding investors,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office.

The SEC’s complaint names two relief defendants for the purposes of recovering money in their possession that resulted from the schemes.  Thompson’s wife Kendall Thompson received $200,000 in proceeds from one of the stock manipulation schemes.  John Babikian, who operated a penny stock promotion business primarily from a website named AwesomePennyStocks.com, received $1 million as a result of one of the schemes. In a separate SEC case involving a different scheme, a court ordered $3.73 million in sanctions against Babikian.

The SEC’s complaint charges Thompson, Fung, and Van Nguyen with violating the antifraud and anti-touting provisions of the federal securities laws and related rules.  The SEC is seeking disgorgement of ill-gotten gains from the schemes plus prejudgment interest and penalties as well as permanent injunctions against further violations of the securities laws.

Thompson and Fung also were named in a separate SEC case for their roles in a Florida-based scheme in which they promoted a penny stock in their newsletters without adequately disclosing they were selling their shares in the same stock and receiving compensation for their promotional efforts.  A court issued a final judgment requiring them to pay more than $1 million combined.

The SEC’s investigation was conducted by Peter Pizzani, Timothy Nealon, Michael Osnato, and Thomas P. Smith Jr. of the SEC’s New York Regional Office, and the case was supervised by Mr. Wadhwa.  The SEC’s litigation will be led by Howard A. Fischer.  The SEC appreciates the assistance of the Manhattan District Attorney’s Office and the Financial Industry Regulatory Authority.

SEC CHARGES CALIFORNIA ATTORNEY IN PUMP-AND-DUMP SCHEME TO DEFRAUD INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission last week charged an attorney in Orange County, Calif., and two men in Massachusetts behind a pump-and-dump scheme that defrauded investors in a Boston-based ticket brokering business.

The SEC alleges that Richard Weed, a partner in a Newport Beach law practice, facilitated a scheme to pump and dump the stock of CitySide Tickets Inc., which he helped structure into a publicly traded company through reverse mergers.  Weed created backdated promissory notes and authored false legal opinion letters that enabled Thomas Brazil and Coleman Flaherty to obtain millions of purportedly unrestricted shares of stock in the company.  Investors were then blitzed with a false and misleading promotional campaign touting CitySide Tickets as a budding national leader on the verge of acquiring smaller ticket firms across the country and positioning itself as an attractive takeover target for Ticketmaster.  As the company’s stock price increased on the false hype, Brazil and Flaherty sold their shares to unsuspecting investors for illicit proceeds of approximately $3 million, and Weed was well-compensated for his role in the scheme.  Shortly thereafter, the market for CitySide Tickets stock collapsed and the company eventually went out of business.

In a parallel case, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal actions against Weed, Brazil, and Flaherty.

“CitySide was billed as the hottest ticket in town and investors were encouraged to get in the game when the playing field was actually tilted against them,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.  “Weed exploited his position of legal authority to enable Brazil and Flaherty to get the stock needed to pull off the scheme, and he served as an officer and director of CitySide to help them secretly control the company.”

According to the SEC’s complaint filed in federal court in Boston, all of the false promotions painted a rosy, optimistic picture of a company that was actually in dire financial straits.  For example, one promotional alert falsely claimed that CitySide Tickets was “in the process now of swallowing up 5 smaller ticket resellers that could send next year’s profits through the roof.”  In reality, CitySide Tickets lacked the means for such acquisitions.  The alert further embellished that the company’s growth from purportedly swallowing up smaller fish in the ticket-selling market would make CitySide Tickets “an irresistible takeover target for Ticketmaster, the biggest fish of all.”  The alert estimated that a Ticketmaster acquisition of CitySide Tickets “could easily jump this under-50-cent stock to $2.50 - $3.50 overnight.”  

The SEC’s complaint charges Brazil, Flaherty, and Weed with violating antifraud provisions of the federal securities laws and related rules.  The SEC is seeking disgorgement of ill-gotten gains from the scheme plus interest and penalties as well as penny stock bars and permanent injunctions against further violations of the securities laws.  The SEC also is seeking to bar Weed from serving as an officer or director of any public company.  Weed lives in Newport Beach, Brazil lives in Topsfield, Mass., and Flaherty lives in Hingham, Mass.

The SEC’s investigation was conducted by Andrew J. Palid and Mark Albers of the SEC’s Boston Regional Office and supervised by Michele T. Perillo.  The SEC’s litigation will be led by Martin F. Healey.  SEC attorney Eric A. Forni has been appointed a Special Assistant U.S. Attorney in the parallel criminal case.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.

SEC BRINGS CHARGES IN ALLEGED PUMP-AND-DUMP SCHEME INVOLVING OIL-AND-GAS TECHNOLOGY COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today announced charges against a Houston-based penny stock company and four individuals behind a pump-and-dump scheme that misled investors to believe the company was on the brink of developing revolutionary technology to enable environmentally friendly oil-and-gas production.

The SEC alleges that Andrew I. Farmer orchestrated the scheme by creating a shell company called Chimera Energy, secretly obtaining control of all shares issued in an initial public offering (IPO) in late 2011, and launching an aggressive promotional campaign midway through 2012 to hype the stock to investors.  Chimera Energy issued around three dozen press releases in a two-month period about its supposed licensing and development of technology to extract shale oil without the perceived environmental impact of hydraulic fracturing known as fracking.  However, Chimera Energy did not actually license or even possess the technology it touted and had not achieved the claimed results in commercially developing it.  While the stock was being pumped by the false claims, entities controlled by Farmer dumped more than 6 million shares on the public markets for illicit proceeds of more than $4.5 million.

The SEC suspended trading in Chimera Energy stock in 2012 and prevented Farmer and his associates from dumping additional shares or misleading new investors into their scheme.

In addition to Chimera Energy and Farmer, the SEC’s complaint charges a pair of figurehead CEOs installed by Farmer.  The SEC alleges that Charles E. Grob Jr. and Baldemar Rios approved the misleading press releases and operated Chimera Energy at the minimum level necessary to lend the company a veneer of legitimacy while concealing Farmer’s involvement altogether.  The SEC’s complaint also charges Carolyn Austin with helping Farmer profit from his scheme by dumping shares of Chimera Energy stock in the midst of the promotional efforts.

“Farmer and his accomplices secretly rigged the market for Chimera Energy stock and illegally profited by exaggerating the company’s capabilities and technology,” said David Woodcock, director of the SEC’s Fort Worth Regional Office.  “They seized on fracking as a topic of public discourse and aggressively touted an entirely fictitious business to attract unwitting investors.” 

According to the SEC’s complaint filed yesterday in federal court in Houston, Farmer obtained control of all 5 million shares of Chimera Energy stock issued in the IPO by disguising his ownership through the use of nominee shareholders.  Farmer’s name and the nature of his control over the company were not disclosed to investors in any of Chimera Energy’s public filings.  Following the IPO, Farmer directed the press release barrage along with an Internet advertising campaign designed to increase investor awareness of Chimera Energy’s claims.  The initial press release issued by the company on July 30, 2012, sported the headline: CHMR Unveils Breakthrough Shale Oil Extraction Method to Safely and Effectively Replace Hydraulic Fracturing.

The SEC alleges that Chimera Energy disclosed in public filings that an entity named China Inland had granted the company an “exclusive license to develop and commercialize cutting edge technologies related to Non-Hydraulic Extraction.”  The technology that China Inland purportedly licensed to Chimera Energy was described as an “environmentally friendly oil & gas extraction procedure for shale to replace hydraulic fracturing.”  The SEC’s investigation found that the purported acquisition of a license to develop such technology and the license agreement itself are entirely fictitious.  No legitimate entity known as China Inland even exists. 

The SEC’s complaint charges Chimera Energy, Farmer, Grob, Rios, and Austin with securities fraud, registration violations, and reporting violations.  The SEC seeks permanent injunctions, disgorgement with prejudgment interest and financial penalties, penny stock bars, and officer-and-director bars.

The SEC’s investigation, which is continuing, has been conducted by Nikolay Vydashenko and Eric Werner in the Fort Worth Regional Office.  The SEC’s litigation will be led by Matthew Gulde and Mr. Vydashenko.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC, FINRA ISSUE JOINT WARNING OVER E-MAIL "PUMP-AND-DUMP STOCK SCHEMES"

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., June 12, 2013 — The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) today issued a warning to investors about a sharp increase in e-mail linked to "pump-and-dump" stock schemes.

The investor alert entitled Inbox Alert-Don't Trade on Pump-And-Dump Stock E-mails notes that the latest McAfee Threats Report confirms a steep rise in spam e-mail linked to bogus "pump-and-dump" stock schemes designed to trick unsuspecting investors. These false claims could also be made on social media such as Facebook and Twitter as well as on bulletin boards and chat room pages.

"Investors should always be wary of unsolicited investment offers in the form of an e-mail from a stranger," said Lori Schock, Director of the SEC's Office of Investor Education and Advocacy. "The best response to investment spam is to hit delete."

"Spam e-mail is the bait used to lure people into making bad investment decisions. No one should ever make an investment based on the advice of an unsolicited email," said Cameron Funkhouser, Executive Vice President of FINRA's Office of Fraud Detection and Market Intelligence.

Pump-and-dump promoters frequently claim to have "inside" information about an impending development. Others may say they use an "infallible" system that uses a combination of economic and stock market data to pick stocks. These scams are the inbox equivalent of a boiler room sales operation, hounding investors with potentially false information about a company.

The fraudsters behind these scams stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy they create through the mass e-mail push. Once these fraudsters "dump" their shares by selling them and stop hyping the stock, investors lose their money or are left with worthless or near worthless stock.