U.S. OTA Warnings
Pump and Dump and Stock Swap Scam
The Offshore Trading Administration is warning investors of a two-stage stock scam involving worthless stock, "swaps" and salespeople claiming to represent legitimate companies.
The Offshore Trading Administration has received complaints concerning this scam from various investors.
Stage One: The Pump and Dump
In a typical "pump and dump" scheme, an investor is approached by a brokerage house's salesperson, and offered an incredible deal on a stock described as a once-in-a-lifetime investment.
The stock is likely to be a US-based, over-the-counter, smaller company stock worth fractions of a cent. The brokerage house, while holding a large block of the stock, actively promotes the stock so that the price is driven significantly upward.
Once a sufficient number of investors have overpaid for the stock, the brokerage house ceases to support the market for the stock and the value of the stock falls dramatically, usually to less than one cent per share.
The "brokerage house" promptly closes up shop, and the victim is left holding worthless stock for which there is apparently no demand.
Stage Two: The Stock Swap
Still holding worthless stock, the investor is approached by someone posing as a sales representative of a legitimate-sounding company. It is important to note that the company named was not involved in the scam. The scam artist simply used the name of a legitimate company to make his pitch believable.
The sales representative told the victim that he represented a group of clients trying to acquire stocks that had recently declined, in order to receive tax cuts. The sales representative proposed that the victim swap the worthless stock for recognized blue chip stock held by the tax-burdened clients.
For the purposes of the swap the victim's stocks would be valued at the price(s) that the victim paid.
Since the blue chip stock was priced higher than the value of the victim's stock, the victim was required to pay the difference in the value of the stocks. In one case, a victim submitted US$ 15,000 to an international bank where the suspect held an account. The victim did not actually receive the blue chip stock, but instead was swindled a second time.