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Capt_Nemo

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Capt_Nemo

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Sunday, 11/14/2004 10:02:27 AM

Sunday, November 14, 2004 10:02:27 AM

Post# of 15052
Know the rules of this Crap shoot of a game they call OTCBB trading!!!!

Pump and Dumps: An Inside Look
You have read about them on message boards. You have heard investors whine about them on the chat forums. For those of you who hate to ask questions, we will ask this one for you. What in the world is a pump and dump? A pump and dump is essentially defined as an organized advertising campaign whereby a stock is heavily promoted in the investment community only for the purpose of selling shares. The bottom line is that a successful pump and dump campaign will result in a stock price pumped up to high heaven so that insiders or people close to the company can sell shares at a profit and raise money for themselves or the company. The problem is that in the end the stock price will come crashing down and someone will be left holding the bag. Who are the perpetrators?



Anyone can organize a pump and dump campaign. Sometimes small investors who buy cheap shares when the stock is unknown organize them. Other times they are organized by investment newsletters who were paid by the companies to promote the stock to their readers. We would venture to say that a vast majority of these campaigns are run by people close to the companies who finance the companies through purchasing discounted stock. These investors are looking to cash out. They will be unable to do so unless the stock has enough liquidity (trades frequently) and the price holds up.



Here is a possible scenario: Stock ABCD has been a publicly traded company for years. The stock price has been beaten down badly. The company has little or no revenues and no earnings. An investor who has been accumulating a large block of stock is tired of watching his net worth decrease as the stock goes down. So he develops a plan. He will promote the stock and try to get other investors to buy it. If the plan works he will be able to get his investment back and actually make a huge profit. So he gets started by first telling his friends and family about the stock and how it will be the next Microsoft. He takes it to the next level by posting positive messages about the company all over the Internet, on message boards and the like. He happens to know some people at a powerful investment newsletter. He persuades (or pays) them to tell readers about the stock. This newsletter has a lot of influence and is actually able to convince other newsletters to feature the stock. By the time the information is plastered all over the Internet, the stock actually explodes, as phenomenal buying volume comes in. The stock goes up for several days, as a bandwagon effect take hold (more and more investors buying the stock because they see it going up). Eventually, the stock reaches its high and the buying stops. Then the stock comes crashing down, usually back to the level it was at before the pump and dump campaign began.



So is the pump and dump a terrible, evil thing that investors should stay away from? Not if they want to make tons of money fast. A pump and dump is both a blessing and a curse. For those who know how to play the “game” it can be a blessing. For an amateur investor who knows nothing about the business, it can be a curse, as losses will be heavy. Amateurs shouldn’t be involved in the OTCBB anyway, as the market is best suited for speculators (investors who are willing to take a calculated risk and are prepared to lose the entire investment) .



Here are some tips for playing the game:

1) Subscribe to one or more investment newsletters. These letters often reveal stocks that are beginning promotional campaigns. Don’t chase stocks that have been listed on the newsletter for a while. Chances are, the stock has already had a run. You have to get in at the lowest possible level when the stock is first mentioned.



2) Do your own research. Check the message boards and see what is being said about the stock. Are there only a few messages? This is a telltale sign that you may have found a good one, as most stocks that are unheard of will have little or no following. A good service is Raging Bull (www.ragingbull.com). Check the stock chart like that found at www.bigcharts.com. Make sure you are buying the stock at the lowest possible level.



3) If you get lucky enough to find a pump and dump don’t get greedy. It is very easy to double your money in penny stocks. Pump and dumps tend to move very quickly. That means they can move against you. So the longer you hold on the more likely you will lose when the stock goes down again. If you can make a few bucks take the money and

run. If you are just getting your feet wet with the OTCBB, don’t put too much money in. $500 is plenty of money for a beginner. Even if you are an expert investor I wouldn’t put in any more than $10,000 maximum. The problem with huge blocks of stock is that they are harder to sell than smaller lots.



4) Don’t fall in love with a stock. The reality is most OTCBB stocks trade on strictly supply and demand of the stock. The good stories told by these companies help sell stock but don’t bring in real revenues to the companies. Even those rare stocks that do have revenues or earnings will not trade according to the same formulas as stocks listed on larger exchanges like NASDAQ or NYSE. The reality is it doesn’t matter if a company sells apples and oranges or it builds fiber optic telecommunication networks. If it tells its story effectively, and packages and promotes its stock in an organized campaign that brings in more buying than people who are selling at the momentt, the stock price can go through the roof.



A pump and dump is essentially the proverbial glass of water viewed as half empty or half full. The concept has its promoters and detractors. If you can find a good pump and dump you can make a killing. If you get in too late you could lose all your money as the stock plummets. A pump and dump is not for everyone. Only seasoned investors should attempt to play the game. If you are skilled at it you can make a fortune. If you are an amateur you could lose every penny. Let the buyer beware.

By Daryn P. Fleming

Published by OTCBB News Network


In the OTCBB, you will often here the term "pump and dump." Commonly it is being referred to as the "promoters" who were paid, usually by the company, to provide exposure to a stock. Widely followed promoters can move stocks quickly, and often they come down just as fast. Promoters are thought by many to sell their shares they received as compensation during the initial spike. Thereby, the phrase of pump and dump.

Promoters are like a four-letter word in the OTCBB. However, aren't promoters providing a service to the companies? The companies desire "exposure" and that is what promoters offer and deliver. Main stream media does not provide OTCBB companies with exposure unless it is to unveil a scam, (admittedly, it does happen more in the OTCBB).

Promoter's counterparts, in the broader markets, analysts are highly regarded. They provide "coverage" of a stock. They issue buy, sell recommendations, and give targets. In the OTCBB this is called "touting" and looked down upon, but the Wall Street analysts are embraced. The only difference is actually perception.

The objective of both promoters and analyst is to generate interest in the particular stock. With interest usually comes buying, followed by a higher share price. This is also the shareholders ultimate objective, a higher share price. With everyone having the same objective, how can perceptions of each be so different?

Obviously there are dishonest promoters, and probably more in the OTCBB than analysts in the broader markets. However, rarely, if ever, does someone do something without a particular motivation behind it. In current market conditions, more and more scrutiny is being applied to analysts' motivations. Even main stream media such as Time and CNBC are applying pressure on analysts "picks". Are investors just looking for someone to blame when their portfolio doesn't go straight up? Sure, it would be nice if we could gather all of our investment research from one click of the mouse, unfortunately that is not a reality. Someone's recommendation does not constitute "due diligence".

Whether to buy or sell a particular stock ultimately is the investors' decision. While I personally don't follow any promoters (or analyst I must add) recommendations, I do feel there is a genuine need for them in the OTCBB venue, and obviously companies do as well. In the end, each of our success, promoters, analysts, and investors, is measured the same: whether the stock of our choice went up.



Waiting on News?

It often appears news is highly expected on most OTCBB companies. Rumors of 'good news coming soon', is rampant on the majority of Bulletin Board message boards. Sometimes it is just a way for momo (momentum) traders to encourage buying in the particular stock. Other times, shareholders are eagerly expecting news, either due to insinuations by the company in past PRs or actual news promised by the company.



But what is the actual process of a company releasing news? What channels does it have to go through? These are some of the questions Serena Riedel, the VP/Director of Investor Relations at RealSense.Com, Inc., will attempt to shed some light on in this interview.



Michelle: Obviously, the company must have something of substance to warrant a PR, but after the company has substantiated the reason for a PR, where does it originate, with the company or with IR (Investor Relations)? Can you explain the process, from development of the PR (Press Release) to release to the public?



Serena: Developments of material importance occur in Official Company Press Releases that are carefully reviewed and approved by the company’s management, SEC counsel, and other involved parties and their legal counsel. Every company handles the writing process a little differently but in the end, it is all the same….the IRO reviews it from an investors point of view and makes necessary revisions, followed by legal counsel approval for all parties involved. What substantiates an event of material importance is outlined by Regulation FD guidelines and determined by the company’s management, its legal counsel and the IRO collectively.



Michelle: Once the PR is written and approved, what is the process of actual release? Does the IRO give the wires a specific time of release or is that to the discretion of the wires?



Serena: Using one of the wire services to deliver corporate news to the media and investment community is the first, most crucial step of distribution to satisfy disclosure requirements. Depending on the company’s wishes, the IRO can instruct the wire service to release immediately or at a specific time. Once it crosses the wire, the rest of the dissemination process can begin - email blasts, shareholder lists, posting on the company’s website or other news sites, contacting newspaper and trade reporters, and setting up interviews to talk about the recent news.



Michelle: I have seen you post on message boards. I have not seen this custom practiced by many in your field. Why have you incorporated this venue into your style?



Serena: It is a topic gaining more attention at investor relations conferences however many IRO’s still feel it serves no purpose in their program and they may be right depending on the stock. Representing one of the most widely traded stocks on the OTCBB that trades millions of shares per day warrants a different IR approach and attracts a different set of investors than a stock trading 100,000 shares per day, one with institutional investors or one with analyst coverage. Rumors can affect daily trading positively or negatively. Speculative posts can influence the occasional investor who checks the board now and then but is not familiar with the possible underlying agenda of the poster. It helps us to better understand and communicate with the investors who call and email us on a regular basis wanting to differentiate fact from speculation. Though we are constantly monitoring the discussion boards, I generally do not post unless there is a highly disruptive issue the company would like me to clarify for with its shareholders, and then try to keep the posts as factual as possible without personal interpretation.



Michelle: How do you manage the multitude of inquiries from individual shareholders seeking information regarding a particular stock?



Serena: A large number of inquiries we receive on a daily basis ask the same questions. It is an IRO’s responsibility to ensure a "level playing field" for all investors. We have found it best to develop a standard response for the typically asked questions with the help of the company’s management to ensure consistency and timely response in our responses.



Michelle: At times it appears that news is widely known before the actual PR, not only in the OTCBB but in the broader markets as well. What is your opinion on how so many people are able to find out confidential information?



Serena: It is the nature of some investors to dig deeper than anyone else and exercise their abilities to access public records. The Internet greatly aides in their efforts to uncover confidential information which they often do not know how to interpret properly. They get great satisfaction in being able to unveil their latest find on the boards much to the delight or dismay of others who willingly will speculate on it. Some OCTBB stocks are prone to this behavior more than others.



Michelle: What knowledge can you pass along to us that is typically not known of your industry?



Serena: Recent SEC rulings impact the timing, distribution and content of what the IRO can and cannot say about material issues. Having knowledge of a company's various developments under consideration does not mean that the spokesperson can disclose these subjects with the investment community at will. Investors have a hard time understanding such limitations exist and feel it is unfair that we cannot tell them everything they want to know. An IRO cannot divulge, interpret or otherwise comment on client strategies and negotiations until it has been disclosed to all in an official company press release.

By Michelle DeMeritt

Published by OTCBB News Network

http://members.tripod.com/foolsgold77/promoted_stocks.htm

Report scum err scams here #board-610

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