Getting the word out
The pattern for these penny stock pumps is remarkably consistent. Stock is ignored. Stock is hyped. Stock takes off. Stock tanks, below its pre-hype levels. (The reliability of that pattern is why our contra-penny-stock-spam returns tracker, TMFStockSpam, is currently ranked seventh out of 75,188 players in our CAPS system.)
To feed the beast what it needs — the email addresses of gullible or naive speculators — PreferredPennyStocks.com and its brethren resort to some old tricks.
For starters, the pumpers do a masterful job at insinuating massive profits from a small initial sum. One constant: empty promises of 1,000%-plus gains in a matter of weeks. For example, PreferredPennyStocks.com touts a stock’s 2,200% gain on its homepage… but that stock is currently trading for less than 1 cent.
But, again, the promoters find ways to leech off the credibility of mainstream financial journalism.
Forbes.com reported record traffic in March. At the bottom of every article page on its site is this:
From Forbes.com.
That innocuous-looking “From Around the Web” is an ad unit meant to look like editorial content.
The company behind that ad unit is HowLifeWorks, which eschews traditional display advertising in favor of “advertorials” — ads that masquerade as legitimate article content.
The first advertorial above, “Small Investors Are Making Huge Returns Trading Penny Stocks,” is an effective advertisement for a penny stock operation called PennyStocks.com. Once you click from the advertorial to PennyStocks.com, the site aggressively pushes you to sign up for its alerts newsletter.
The ploy, then:
- Buy nontraditional advertising (advertorials) on legitimate websites like Forbes.com.
- Get readers to click from a Forbes.com article to what seems like another article but is actually a hardly veiled advertisement.
- Use the faux editorial to push folks from the advertorial site to PennyStocks.com.
Once there, it gets even slimier. For one thing, it can be difficult to get off these lists. Here’s the press release describing the lawsuit against Goff and its promoters: “In spite of multiple attempts by the Plaintiff to opt out of these unsolicited emails, the spam continues to be sent to his inbox.”
The fake celebrity endorsement
There’s also the fake celebrity endorsement. PennyStocks.com sells a bad product to unwitting investors, and, no surprise, cannot get real endorsements, celebrity or otherwise.
So it fakes them:
Image from PennyStocks.com.
All of the “endorsements” do not fit within one image, but here’s a flavor:
- “@MarkCuban: I wish the Mavs had as many gains as pennystocks.com! I still luv my team though.”
- “@realDonaldTrump: I can’t believe I listened to Ivanka and signed up to PennyStocks.com.”
- “@50Cent: I got shot 9 times but 9 out of 10 picks at pennystocks.com are winnaz!”
- “@jimcramer: Checkout PennyStocks.com’s latest stock it’s soaring!!!”
When reached for comment, Mark Cuban said, simply, “It’s fake,” and also pointed out that @MarkCuban isn’t even his Twitter handle (his is @mcuban). Furthermore, there is no evidence that @MarkCuban, whoever that is, or @mcuban has ever tweeted what PennyStocks.com claims.
Also a fabrication: The PennyStocks Twitter handle has fewer than 4,500 followers, not the 127,000-plus it claims. It last sent a tweet in 2011 (and its profile refers to a site called HotStockMarket, not PennyStocks.com, anyway).
Pennies worth nothing
Penny stock promoters go to a lot of trouble to appear legitimate, and they sucker in naive, greedy, or unwitting investors (refer again to Goff’s rise and fall).
Yet anyone taking a flier on these types of stocks isn’t an investor at all. Investing is about finding solid businesses with competitive advantages, competent managers, and strong and improving financial results.
This is speculation. If speculating in penny stocks is your thing, consider this: You’d be better off igniting a pile of your own money.
At least your cash would disintegrate in plain view.
The article The Desperate, Deceptive Measures Penny Stock Scammers Use to Dupe Investors originally appeared on Fool.com.
Follow Motley Fool managing editor Brian Richards on Twitter, Google+, or Fool.com. Brian owns shares of LinkedIn. The Motley Fool recommends Apple and LinkedIn. The Motley Fool owns shares of Apple and LinkedIn. The Motley Fool has a disclosure policy.
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