The "Nigerian" 419 Letters, faxes, and e-mails (and text messages to mobile phones) looking for assistance in freeing up “millions of dollars” in foreign lands; International Lottery Scams asking for bank account details to facilitate revenue sharing of big winnings; Phishing e-mails spams and VoIP 'vishing’ sent by identity thieves intent on fraudulently capturing your personal information (credit card numbers, bank account information, Social Security number, passwords, or other sensitive information); and, Purchase scam services (offshore corporation lacking a U.S. address or bank account and in need of someone to take goods sent to their address and reship them overseas for a split percentage}—the common denominator in all of these schemes is to get the unsuspecting to part with their savings.
In August 2004, the Securities and Exchange Commission (SEC) first issued an investor alert warning about a new twist on the "pump and dump" stock-fraud scam– answering machine “wrong number” stock tips. We are not referring to the 1948 film, Sorry, Wrong Number, starring Barbara Stanwyck as a bedridden millionaire's daughter who overhears a plot for murder. The SEC became aware that messages were being left on answering machines (throughout the United States) saying that the price of a small, thinly traded company’s stock would shoot up soon. The caller makes it appear they believe they are leaving a message for a friend and do not realize they have dialed the “wrong number.” The message is designed to sound as if the speaker didn't realize that he or she was leaving the hot tip on the wrong machine:
"Hey Tracy, it's Debbie. I couldn't find your old number and Tammy says this is the new one. I hope it's the right one. Anyway, remember Eva, that hot stock exchange guy that I'm dating? He gave my father that stock tip on WLSF and it went from under a buck to like three bucks in two weeks and you were mad I didn't call you? Well I'm calling you now. This new company is supposed to be like the next Tommy Bahama and they’re making some big news announcement this week. The stock symbol is ... He says it’s cheap now. It's at like 50 cents—Sorry I’m eating but I’m starving—and it's going up to like 5 or 6 bucks this week so get as much as you can. Call me on my cell—I’m still in Orlando. It’s 407-XXX-XXXX. My Dad and I are buying a bunch tomorrow and I already called Kelly and Ron too. Anyway I miss you, give me a call. Bye."
[Listen to one of the "wrong number" voicemails here.]
Regulators have since uncovered direct evidence implicating stock promoters and related parties who are being paid to leave these messages on hundreds, if not thousands, of answering machines in the hope that people will buy the stock and drive the price up. The people behind the scam own the stock and will then be able to sell it a profit after which the stock will fall when the calls stop.
These scams have also migrated to email and faxes. The SEC has also released ‘Investor Alert’ bulletins warning of similar cozenages that start out like this:
- “ …Hey you!
PLEASE don't tell anyone about this email, because if the SEC finds out, I could get in big trouble for passing on this information, maybe even go to jail.
This is super important! I hope I have the right email for you. Your messages keep bouncing back because your mailbox is full, and I seem to remember this is your other account. I tried calling but you're not home…. arghh! OK here's the news.”
On May 3, 2005, The SEC filed two complaints in the United States District Court of the District of Columbia charging two voicemail broadcasters and associated individuals with the nationwide broadcasting of hundreds of thousands of fraudulent "wrong number" stock tip messages.
Michael O'Grady and two affiliated Augusta, Ga.-based telemarketing companies, Telephone Broadcast Company, LLC and Telephony Leasing Corporation, LLC, were charged with broadcasting "wrong number" touts of at least six microcap stocks. The complaint alleged that the messages were part of a larger scheme enabling Houston-based stock promoters to sell approximately $4.5 million of one of the touted stocks through a Tampa, Fla.-based broker-dealer. Authorities say the scheme drove up the price of each of the touted stocks, temporarily inflating their combined market capitalization (in just 26 days) by approximately $179 million.
According to the SEC, O'Grady himself profited from trading in three of the stocks. For example, on or about July 28, 2004, O’Grady purchased 10,000 shares of [despite its misleading name] a developmental stage company involved in adult stem cell technology, Maui General Store, Inc. (MAUG.OB-$0.043) at $0.68 per share and sold the shares on or about July 29, 2004, as the price spiked to $0.98 per share, realizing a $3,001 profit.
Without admitting or denying the allegations made by the Commission, O'Grady consented to a final judgment ordering him to pay $50,786 in disgorgement and prejudgment interest and a $25,000 penalty. The SEC's action against O'Grady was brought contemporaneously with a related action by the U. S. Attorney's Office for the District of Columbia in which O'Grady pled guilty to one count of criminal information charging him with obstruction of justice.
The scheme allegedly spawned a copycat scam involving thousands of similar phony voicemail messages promoting the shares of two small, thinly traded companies: Triton American Energy Corp. (TRAE.PK-$0.185), a small, Houston-based oil company, and Yap International, Inc. (YIPL), a provider of a wide range of wireless and communications solutions, now known as iPackets Int’l (IPKL.PK-$0.0017).
In this latter case, the SEC filed charges against David E. Whittemore of Dallas, his company Whittemore Management Inc (WMI), Peter S. Cahill of Houston and his company Clearlake Venture Group.
The complaint alleges that in July 2004, Cahill, who had acquired a material number of the outstanding shares of TRAE, contacted Whittemore to engage WMI’s services to broadcast voicemail messages touting the stock of TRAE.. Whittemore and WMI, who are in the business of using auto-dialing computers to broadcast prerecorded messages via telephone, agreed to broadcast messages for Cahill and his company Clearlake Venture Group.
On or about August 12, 2004, Cahill paid Whittemore 594,000 shares of TRAE stock in advance for his services. Whittemore later returned the TRAE shares to Cahill, who then paid Whittemore $142,000 in lieu of the returned stock.
On or about August 17, 18, 19, 31 and September 14, 2004 and other dates unknown, in furtherance of the scheme to defraud, Whittemore and WMI broadcast a series of false and misleading messages touting TRAE, leaving the following or a substantially similar message on telephone answering machines across the country:
- “Hey David, it’s Kathy. Listen, honey, Jim wanted me to give you a call. I just put him on a plane and he didn't have time to call you himself, uh, but he wanted you to know…remember those guys that do those stock promos? They’re getting ready to start another one this week. Uhm, they just did, uh, shoot. Hang on there a minute, let me look here and see. Okay, the first one was CNDD, the other one was PWRM, and he said that the next one you can get in on was TRAE. Let me look here, uhm, yeah, TRAE. It’s an oil company. And, anyway, he said he thought that it’s gonna be their best stock promotion this year. It’s at 75 cents right now and I think it’s going to go up to like five or six bucks, or something like that. He said you needed to get in in the morning before the price starts going up ‘cause you definitely want in on this one. Give him a call later tonight, sweetheart, and, um, I think that’s it. I'll talk to you soon. Bye.”
Studies have shown that stock tips posted online, or 'inadvertently' left on voicemail, or sent over email, can have a significant effect on the stock market.
In the case of Kathy, David, and Jim--The messages had their intended effect, increasing the trading volume and share price of TRAE stock. During the voicemail scheme to defraud, the price of TRAE’s common stock, which had last traded at $.32 per share on August 6, 2004 with a trading volume of 10,000 shares, tripled to a high of $.97 per share with a trading volume of 756,000 shares on August 19, 2004, an increase in market capitalization of approximately $12 million.
Cahill profited by selling TRAE shares while the voicemails were being broadcast. Between approximately August 23 and September 14, 2004, Cahill sold 680,800 TRAE shares, generating proceeds of $508,056.
Similar fraudulent messages were left in late August and early September 2004 about the stock of YPIL. Between approximately August 19 and August 27, 2004, WMI sold 45,014 of these YPIL shares generating proceeds of approximately $37,070.
The messages had their intended effect, increasing the trading volume and share price of YPIL’s common stock. During the voicemail scheme to defraud, the price and trading volume the stock of YPIL, which had traded at $.68 per share with a trading volume of 7,380 shares on August 27, 2004, spiked to a high of $1.00 per share with a trading volume of 302,814 shares on September 1, 2004, an increase in market capitalization of approximately $10 million.
The Commission's complaint against Whittemore, WMI, Cahill and Clearlake seeks civil penalties, disgorgement of all ill-gotten gains plus prejudgment interest, and permanent injunctions barring future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder against all four defendants. This complaint is pending in federal court.
The SEC, like the FBI, “always gets their man”—or in this case, their woman. On July 27, 2006, the Commission filed charges against a Florida woman, Anna Boling (the alleged “Debbie” in the aforementioned fraudulent "wrong number" stock tip messages), her then husband, Roderic Boling, and stock promoter, Jeffrey Mills of Longwood, Florida and his company, Direct Results of Sweetwater, LLC, for the broadcasting of hundreds of thousands of Misleading Stock Tip Voicemail Messages.
In its action, the Commission seeks permanent injunctive relief, disgorgement of illegal profits with prejudgment interest, and civil monetary penalties based on each of the defendants' alleged violations of the antifraud provisions of the federal securities laws, specifically Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Anna Boling’s alleged aiding and abetting of those violations.
To avoid being the victim of the Pump and Dump, keep in mind the following tips from the online watchdog, The Fraud Bureau, which monitors Internet fraud and/or deceptive business practices:
- Beware of unsolicited email or telephone calls. Only deal with people you know. If you have any questions about a penny stock, call your broker who can assist you in learning more about a stock.
- Don't make hasty decisions after speaking with a promoter or after hearing a tip.
- Don't believe any promise of great profits at no risk. No investment can deliver guaranteed profits at nominal risk.
- Don't believe in claims of inside information.
- Do your own research. Look at any recent press releases of the company and take the company at face value.
If after reading this article, you still find yourself the patsy to your own greed, look on the bright side: “Never cry over spilt milk. It could've been whiskey." [Maverick-the classic TV Western shown on ABC in the late 1950s, starring James Garner]