Chapter 1: Deja Vu – A History of Stock Scams
Stock fraud, which now runs rampant on the Internet, may have found a new medium, but charlatans pushing penny stocks are nothing new to the investment community. Today’s scams, moving at cyber speed, evolved from the highpressured telemarketing ruses of the early 1980s. That’s when cold calling for sales-practiced mainly west of the Mississippi and targeted toward people who were generally more isolated from financial centers and less sophisticated about the ways of Wall Street-invaded major metropolitan areas and the population-rich East Coast.
Prior to that invasion, stock fraud had quite a run in the middle of the twentieth century, when cheap gold and silver mining stocks were heaped on unsuspecting investors who were newly flush with post-World War 11 riches.
Going back still further, to the early 1900s, Charles Ponzi foisted on investors the first pyramid scheme (the money from later contributors is used to pay off early investors). Scams based on this pattern would eventually bear Ponzi’s name.
Ponzi schemes have enjoyed a renaissance in recent years; the schemers use the Internet to reach a wider pool of victims. But today’s pyramid schemes have a twist that most often relieves investors of their money. “Pump ‘n’ dump” scams amplify the pyramid hoax: Investors funneling into the market on the pump inevitably bankroll huge profits for those who got in earlier. The difference here is that, more than likely, the earliest investors know what is going on. In a Ponzi scheme, everyone’s flying blind. The vehicle of choice for this feat of economic engineering is typically a thinly traded penny stock.
Stock fraud, which now runs rampant on the Internet, may have found a new medium, but charlatans pushing penny stocks are nothing new to the investment community. Today’s scams, moving at cyber speed, evolved from the highpressured telemarketing ruses of the early 1980s. That’s when cold calling for sales-practiced mainly west of the Mississippi and targeted toward people who were generally more isolated from financial centers and less sophisticated about the ways of Wall Street-invaded major metropolitan areas and the population-rich East Coast.
Prior to that invasion, stock fraud had quite a run in the middle of the twentieth century, when cheap gold and silver mining stocks were heaped on unsuspecting investors who were newly flush with post-World War 11 riches.
Going back still further, to the early 1900s, Charles Ponzi foisted on investors the first pyramid scheme (the money from later contributors is used to pay off early investors). Scams based on this pattern would eventually bear Ponzi’s name.
Ponzi schemes have enjoyed a renaissance in recent years; the schemers use the Internet to reach a wider pool of victims. But today’s pyramid schemes have a twist that most often relieves investors of their money. “Pump ‘n’ dump” scams amplify the pyramid hoax: Investors funneling into the market on the pump inevitably bankroll huge profits for those who got in earlier. The difference here is that, more than likely, the earliest investors know what is going on. In a Ponzi scheme, everyone’s flying blind. The vehicle of choice for this feat of economic engineering is typically a thinly traded penny stock.
Stock fraud, which now runs rampant on the Internet, may have found a new medium, but charlatans pushing penny stocks are nothing new to the investment community. Today’s scams, moving at cyber speed, evolved from the highpressured telemarketing ruses of the early 1980s. That’s when cold calling for sales-practiced mainly west of the Mississippi and targeted toward people who were generally more isolated from financial centers and less sophisticated about the ways of Wall Street-invaded major metropolitan areas and the population-rich East Coast.
Prior to that invasion, stock fraud had quite a run in the middle of the twentieth century, when cheap gold and silver mining stocks were heaped on unsuspecting investors who were newly flush with post-World War 11 riches.
Going back still further, to the early 1900s, Charles Ponzi foisted on investors the first pyramid scheme (the money from later contributors is used to pay off early investors). Scams based on this pattern would eventually bear Ponzi’s name.
Ponzi schemes have enjoyed a renaissance in recent years; the schemers use the Internet to reach a wider pool of victims. But today’s pyramid schemes have a twist that most often relieves investors of their money. “Pump ‘n’ dump” scams amplify the pyramid hoax: Investors funneling into the market on the pump inevitably bankroll huge profits for those who got in earlier. The difference here is that, more than likely, the earliest investors know what is going on. In a Ponzi scheme, everyone’s flying blind. The vehicle of choice for this feat of economic engineering is typically a thinly traded penny stock…
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