Feds Suspend Three Firms in Pump & Dump Scam

Spammers use email to drive up price of penny stocks

March 24, 2008

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The Securities and Exchange Commission (SEC) has for years targeted con artists who run what's called the "pump and dump" scam. Now it's taking a hard look at some of the companies being touted.

In the pump and dump scam, spam email and phone banks tout essentially worthless penny stocks. Consumers fall for the scheme and start buying the stock, which drives up its price. the con artists then unload their stock and take a huge profit, leaving victims with stock that is once again worthless.

In its latest action, the SEC has suspended trading in the stocks of three companies that have been the subject of these spam email campaigns – and in a new wrinkle – the subjects of promotional videos on YouTube.

In finding the firms haven't adequately disclosed information to investors, the SEC suspended trading in NeoTactix Corporation (NTCX), Graystone Park Enterprises, Inc. (GPKE), and Younger America, Inc. (YNGR).

"The SEC's anti-spam efforts have been remarkably successful to date, but we will not be complacent in our pursuit of unscrupulous stock promoters," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "The SEC will continue to take aggressive action against stock promoters and spammers, including those who are exploiting investors through YouTube."

To date, the SEC says it has suspended trading in the securities of 50 companies and has brought several enforcement actions against spammers, promoters, and insiders. It said these latest three suspensions are the result of a coordinated effort between the SEC's New York, Denver, and Washington D.C. offices.

The stocks in question are so-called "penny stocks," meaning they usually trade for less than a dollar. Their low prices allows scammers to buy up hundreds of thousands of shares for a relatively small investment.

If their campaign is able to entice enough traders to purchase shares, prices may rise by several cents a share, allowing the scammers to reap a huge profit when they dump their shares. Those sales cause the stock's price to fall again, so that the buyers responding to the email campaign lose money.

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