Special Blog Post: Securities Scams and the Weather Forecast for Hell

At 10:25 a.m. EDT this morning, a spammer posted a promotion of a penny stock on a comment thread here at The Dark Wraith Forums. One of the long-time commenters here, a gentleman I consider a friend, followed by referencing the trading symbol that had been included in the spam comment. As soon as I saw what was going on, I deleted the spam comment and posted my own comment. It occurred to me that the comment that followed, which referenced the trading symbol, left the intent of the spam comment intact. I have chosen not to delete that comment, however, hoping as I do that everyone understands the context in which his comment then mine were made. It is anathema to me to censor speech except under extenuating circumstances.

That having been said, commercial speech does not enjoy the same rights and priviledges as private speech, so I make no apology for deleting the spam. It was posted here in the furtherance of a promotion of a security with which I have no affiliation whatsoever. The unauthorized use of The Dark Wraith Forums to promote any security constitutes, in my judgment, cyber trespass, among other torts.

The IP address of the commenter indicates that the post was made by a promoter who has most likely received compensation to make representations on behalf of the company that was the subject of the offending comment. In my last years as a business consultant, I spent quite a bit of effort trying to keep the officers and directors of client companies from doing exactly this kind of thing, either on their own or through promoters. I had learned that this was unacceptable, inappropriate, and in some circumstances illegal. It was also in at least some cases part of an "overall plan or scheme" pursuant to what we called a "pump and dump": the promotion of the security was intended to bring in buy orders, which would induce the market makers to push the bid price up. The higher the price, the more the insiders and promoters could get as they sold their stock off pursuant to Rule 144 or some kind of registration statement.

Pump and dump schemes don't work all that often. The buy volume has to get pretty serious, even on a penny stock, before the market makers will start to react. Usually, the entire effort gets a few suckers to buy into a penny stock, and they end up with bupkis.

Once in a while, though, some version of a pump and dump actually does work. The buy volume soars, driving the price of the security up into the treetops. The suckers get just all giddy about how smart they are, and they tell other suckers-in-the-making, who tell other wannabe suckers. Once the demand pressure pushes the stock price high enough, all kinds of sell orders start popping out of the woodwork: consultants dumping their S-8 stock, spouses and kids of insiders uncorking their stock, odd-sounding corporations pounding their stock out, and the insiders getting rid of as much of their insider stock as they can pursuant to restrictions under Rule 144.

In the end, the stock price comes back to Earth, and the suckers who held on, thinking the sky's the limit, learn instead that, in fact, the bottom of a small crater is the limit, and their investment money makes a nice carpet of losses to line the hole in the ground.

The Dark Wraith Forums will never sponsor, support, nor sanction a statement encouraging the purchase of a specific security. In fact, it is my intention to help people understand stocks, bonds, options, futures, and other financial instruments enough to have a healthy fear of the risks involved in foolhardy investments. Securities markets are a world of massively large investors, highly educated and seasoned professionals, powerful computers, high-speed connections, incomprehensibly complex streams of information, and money beyond your wildest dreams. It's also a world of con artists, companies that are already dead whose officers and directors have not yet gotten the clue, brilliant ideas that will never see the break for daylight, honest-to-god geniuses that just don't know how to run a business, and a whole lot of promoters who will pump out e-mails, "newsletters," faxes, press releases, and other hype just to get a pile of stock or a paycheck.

As an investor, at best you're going to make money by investing cautiously and in broad-based portfolios managed by people who know more than you do about that world. For every person about whom you might have heard who made a fortune in some penny stock, there are a couple zillion others who got their clocks roundly cleaned trying to get rich on the cheap in securities markets. I watched it happen.

If you want to get rich quickly, marry into wealth.

If you're too ugly to attract a well-to-do partner, buy some lottery tickets. With probabilities of winning in the tens or hundreds of millions to one against, you're still more likely to hit the big score than you would in the world of securities scams. And as an added bonus, unlike a rich spouse, a winning lottery ticket won't expect you to act properly in public.

The bottom line is simple: if you're looking for advice on what securities to buy, you won't find it at The Dark Wraith Forums.

Not, at least, until the day I change the name of this blog to the Sunny Investment Dweebs Forums. And that's going to happen the day that Hell freezes over.


The Dark Wraith has spoken.