OT: Unfunny Money: Investment and Finance Swindles
Larry Chisholm's friend was making money playing the stock market. And she shared with Chisholm the secret of her success: She was following the advice of an anonymous tipster who posted suggestions on the message boards hosted by the financial Web site Raging Bull.
The tipster was singing the praises of E-pawn.com, a Florida-based Web site.
Chisholm, of White Bear Lake, Minnesota, admits that he knew virtually nothing about researching stocks, but the things he read about E-pawn on Raging Bull's board convinced him to buy in big. According to the tipster, "They were going to be like EBay," he remembers.
Anonymous tipsters in stock scams may be con men themselves or innocent dupes caught up in the excitement.
So Chisholm, retired facilities manager for a technology consulting firm, bought a block of stock at $6.50 per share. The price went up to $8.50 and then started to decline. As it sank, Chisholm figured it was a chance to buy more E-pawn cheap. He spent $41,809 to buy 17,100 shares. The value of his stock now? About $800.
Chisholm was the victim of a pump-and-dump--a scheme in which con artists use the Internet to fraudulently promote the stock, then sell their shares for a big profit, according to a federal indictment from the U.S. Attorney's Office in New York.
This pump-and-dump had a particularly sinister twist, government officials say: It was run in part by the Mob. In the indictment, U.S. attorneys allege that two principals of E-pawn and a stock promoter went for help to DMN Capital Investments. That investment house worked with known Mafia members to commit stock fraud, another federal indictment alleges.
Last summer, the FBI charged 120 people, including members of the five organized-crime families of La Cosa Nostra, with securities fraud and related crimes. E-pawn was 1 of 35 companies that federal officials say the Mob helped to manipulate. Those frauds cost innocent investors approximately $50 million.
The case taught Larry Chisholm a hard lesson. Now he does his homework before investing his money, and he ignores the advice he sees on message boards. "Investment message boards will probably be the cause of more people losing their shirts and jumping off the bridge than anything else," says Chisholm.
Beware of anyone on an investment message board who claims to have inside information, says Barry R. Goldsmith, executive vice president of NASD Regulation, which oversees the securities industry. Sham tipsters will say, "You're going to miss the boat, you have to buy quickly before the news gets out," he warns.
Instead, do thorough research before putting your money in any company, Goldsmith recommends. Good places to start include SmartMoney.com, Forbes.com, BusinessWeek.com, Hoovers.com, Morningstar.com,........
My comments on companies are usually my opinion of long term success (years). The PPS may go up or down greatly in the meantime depending on the number of greedy suckers with money.
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