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Stock fraud sent by SMS

Coming on the heels of phissing, email frauds etc, it seems the con factory works overtime to come with newer tools for fraud. The latest in-thing is using SMS to fool people into buying or selling stocks.

On Tuesday the national association of securities dealers and other US securities regulators issued an alert advising investors to be wary of “hot” stock tips delivered to their cellphones via SMS in a new twist to “pump and dump” stock fraud.

The scam works in a very simple way, the fraudster sends out text messages to investors in the form of “Hot” tips mostly of small, thinly traded stocks thus inflating the price and thereafter selling their shares at a profit. This may cause loss to ordinary investors once the share price start to climb down due to dumping of shares touted.

The text messaging is not an on off incident, it found precedent in the late 1990’s stock market boom where perpetrators employed emails, internet message boards, write ups in financial publications to tout the shares of a company. In more recent years even telephones and faxes have been used.

In a statement, John Gannon, NASD’s vice-president for investor education said “The emergence of text messaging offers fraudsters another cheap and easy way to reach large numbers of potential investors. Now more than ever, investors need to be vigilant about doing their homework before investing and taking the necessary steps to reduce the likelihood of falling prey to these scams.”

NASD further added that investors should understand the basic rule of investing i.e. to never to rely on information coming from unsolicited sources, be it a cellphone text message, e-mail, fax or phone call.

NASD has also asked investors who have received text messages to send the messages to regtipsat@nasd.com

About Ritwik Sinha

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