Replies to post #256129 on CMKM Diamonds Inc (fka CMKX)

[janice shell]

'Pump and Dump' conmen targeted

By Maggie Shiels
Technology reporter, BBC News, Silicon Valley
Published: 2008/08/11 15:36:49 GMT
http://news.bbc.co.uk/2/hi/technology/7552009.stm

Scammers using the net to hype stocks are being targeted with software that can spot fraudulent trading patterns.

Many hi-tech conmen use junk mail to hype stocks so they can sell shares they own in the companies at a profit.

It has been estimated that 15% of all spam or junk e-mail is made up of messages that "pump" stocks that are later "dumped".

Developed by web giant VeriSign the anti-fraud software works by keeping an eye on real-time trading activity.

"This gives brokers a jump on the attackers and raises the bar," said Perry Tancredi, senior manager of anti-fraud services at Verisign.

Cashing in

Pump and dump schemes involve stocks that have had their price artificially inflated. This can be done by manipulating the market but often it is done by sending out a spam run tricking small investors to cash in on a stock.

The fraudsters then quickly sell the overhyped shares collecting profits for themselves and causing investors and brokerages to lose money.

A study of such scams in 2006 concluded that spammers can regularly make a return of up to 6% via such schemes.

This is basic lying, cheating and stealing and the message to anyone engaging in these shenanigans is they are going to get caught."
John Stark, SEC

They are regarded by the U.S. Securities and Exchange Commission (SEC) as one of the most common internet frauds costing billions of dollars a year. Typically scammers target so-called penny stocks for these scams.

"Investors need to be extra careful when they are investing in this kind of company because they can lose all of their money and these stocks are particularly vulnerable to manipulation more than ever because of the internet," said John Stark, head of internet enforcement at the SEC.

Red flag

Mr Tancredi said Verisign's fraud detection kit would help "decrease the time between the attack being launched and the brokerage being able to respond".

Before now, he said, brokerages relied on counter measures such as restrictive stock trading or analysis packages that only spotted a problem when money had gone.

Verisign's software is a module that brokers can add to their in-house trading system that alerts anti-fraud teams to look more closely at trades that exhibit certain behaviour patterns.

"What this self-learning behavioural engine does is look at the different attributes of the event, not necessarily about the computer or where you are logging on from but about the actual transaction, the trade, the amount of the trade," said Mr Tancredi.

"For example have you liquidated all of your assets in stock that you own in order to buy one penny stock?" he said. "Another example is when a customer who normally trades tech stock on Nasdaq all of a sudden trades a penny stock that has to do with health care and is placing a trade four times more than normal."

Because the software looks at the behaviour of a penny stock it can cope with cases where those buying shares are doing so for the first time or have been victims of identity theft.

"The fraudster may buy that one stock in multiple small chunks to stay under the radar, but we can pick that up and send an alert on that," Mr Tancredi said.

"More subtly it will detect and question if say five people at the same brokerage are trading this one penny stock in a short period of time and that stock has shown a spike in volatility," he said, "that will also raise a red flag."

'Investor confidence'

No exact figures are available for how much scammers using "pump and dump" schemes are getting away with.

Geoff Turner, a senior analyst with Forrester Research, said it was easy to understand why figures were vague.

"People are somewhat shy on reporting losses because it erodes investor confidence," he said.

One pump and dump scheme revolving GTX Global involved tens of millions of dollars, said Mr Turner.

He said software than could effectively stop this kind of fraud in its tracks was something the business world would welcome.

"Pump and dump increases the cost of doing business in terms of the loss in the marketplace," he said.

"VeriSign has taken a proven concept in counter fraud control activity from what they have been successful in doing in the online banking environment and that is to gauge the risk of a specific account activity on the fly and score the risk when they see something that departs from the norm."

Mr Stark from the SEC told the BBC that it could not comment on a commercial product, but said the Commission worked closely with many agencies to pursue fraudsters.

He said: "This is basic lying, cheating and stealing and the message to anyone engaging in these shenanigans is they are going to get caught."

http://news.bbc.co.uk/2/hi/technology/7552009.stm

[janice shell]

SEC short selling rule made little impact: studies

Wed Aug 13, 2008 7:11pm EDT
By Emily Chasan
http://www.reuters.com/articlePrint?articleId=USN1349228620080813

NEW YORK (Reuters) - U.S. regulators' emergency rule to restrict "naked" short selling in 19 major financial stocks had little impact and may have even backfired, two studies of the rule's effects showed on Wednesday.

While overall short selling declined in nearly every firm affected by the rule, many of the 19 stocks still suffered declines in their share prices, the studies showed.

The U.S. Securities and Exchange Commission issued an emergency order last month requiring short sellers to pre-borrow stock in mortgage finance giants Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and 17 other Wall Street firms, such as Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) and Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz). While the rule expired at 11:59 p.m. on Tuesday, the SEC had billed it as an attempt to crack down on illegal "naked" short selling, that could allow reckless short selling of the stocks.

"While the SEC's intentions may have been good, their attempt to protect price with rule-making was quite flawed and without intended effect," said John Standerfer, Vice President of Financial Services for market data firm S3 Matching Technologies. "The market has its own mind."

An S3 study of market data showed short sells for the 19 stocks dropped by about 63 percent while the rule was in effect, but the firm concluded the rule was "ineffective," saying short selling "did not seem to be a significant factor" in the market's determination of price for the stocks.

Shares of Fannie Mae and Freddie Mac are off more than 20 percent since the protective rule was first announced, despite an almost 5 percent rise in the benchmark Standard & Poor's 500 index .SPX in the same period.

Even with the protection, S3 found the number of short sells in shares of Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) were often higher while the rule was in effect than they were the day before the rule was announced. But despite the higher levels of short selling, Bank of America's stock price is up more than 40 percent in the past month.

A separate study from Arturo Bris, a finance professor at IMD business school in Lausanne, Switzerland, found that, even controlling for short selling, market efficiency had deteriorated more for the 19 stocks affected by the rule than for other comparable U.S. financial stocks.

Bris found that shares affected by the order lost about 3.8 percent of their value, compared to their peers -- a figure that translates to about a $60 billion loss for the firms' shareholders.

"Our belief is that naked short selling was never a problem with these stocks," said Eric Newman, portfolio manager at long/short fund TFS Capital in West Chester, Pennsylvania.

Indeed, prior to the SEC's rule only one of the 19 stocks, the U.S.-listed shares of Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) (DB.N: Quote, Profile, Research, Stock Buzz), had been listed on the New York Stock Exchange's list that tracks stocks with "fails to delivers" -- an indication of naked short selling.

"We think the SEC are going to read into this data that a lot of short sellers exited positions," Newman added. "But we believe a careful look will show was that naked short selling was not ferreted out, but that it was regular legitimate short sellers who were closing their positions."

(Additional Reporting by Kristina Cooke)

http://www.reuters.com/articlePrint?articleId=USN1349228620080813