SEC cracks down on spam trading scams

SEC cracks down on spam trading scams

US regulators have suspended trading in 35 over-the-counter penny stocks that have been the subject of repeated spam e-mail campaigns urging small investors to buy shares.

The Securities and Exchange Commission (SEC) estimates that 100 million of these stock-related spam messages are sent every week, triggering dramatic spikes in share price and trading volume before the spamming stops and investors lose their money.

The trading suspensions are part of a broader SEC effort - dubbed "Operation Spamalot" - to protect investors from potentially fraudulent spam e-mail hyping small company stocks with phrases like, "Ready to Explode", "Ride the Bull" and "Fast Money".

The securities of each of the 35 banned companies are quoted on the Pink Sheets electronic quotations service.

The SEC says recent trading clearly demonstrates how spam campaigns can affect stock prices and trading volume.

In one example, shares in Apparel Manufacturing Associates closed at $.06 on Friday 15 December 2006, with a trading volume of 3500 shares. After a weekend spam campaign, trading volume on Monday 18 December hit 484,568 shares with the price spiking to over 19 cents a share. Two days later the price climbed again to $.45. But by 27 December the stock was back down to $.10 on trading volume of 65,350 shares.

As well as imposing trading bans the SEC says it is also committed to tracking down those who prey on investors with false or misleading information. Mark Schonfeld, director of the Commission's Northeast regional office, says investigations of the perpetrators - the people behind this misconduct - are continuing.

Says SEC chairman Christopher Cox: "When spam clogs our mailboxes, it's annoying. When it rips off investors, it's illegal and destructive."

"Today's trading suspensions, and actions that will follow, should send a clear message to spammers: the SEC will hold you accountable," states Cox.

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