NASD Warns of Fraudulent Schemes Touting Extraordinary Returns in Low-Priced Stock of "China" Companies.
Economic growth in China and strong performances by indexes reflecting stocks traded on well-known Chinese stock exchanges are fueling both legitimate and illegitimate ways to invest in China. Concerned about fraudulent schemes, the NASD on April 23 issued an Alert warning of pump and dump schemes involving the sale of bogus stock in “China” companies. Too often, these companies have no affiliation whatsoever to China or its stock markets. "The fact that a company has 'China' in its name can be misleading, especially since most of the companies being peddled are not even incorporated in China," said NASD Chairman and CEO Mary L. Schapiro. www.nasd.com/PressRoom/NewsReleases/2007NewsReleases/NASDW_019000
The sales pitches for the bogus stock are sent by e-mail, faxes, and even cell phone text messages. The scheme includes the following typical warning flags:
· unsolicited messages sent by strangers;
· promises of extraordinary rates of return;
· purported “inside” information about the company; and
· an alleged need to act now to get in on the action.
Through their “pump and dump” scheme, promoters or insiders buy the stock in the touted “China” company low and then use their fraudulent efforts to pump up the stock's price. They then sell their shares at an opportune time for a handsome profit, leaving investors holding the bag. Investors are left with stock shares that they might as well paper their walls with since the stock value has plummeted to a price much lower than when they purchased it.
Just as an oil or gas boon can trigger a wave of dubious investments, so too has China's strong economic growth. For some, the time is ripe to score big or lose it all. The key is to be informed in the process.
