One company that we have watched closely was a company called Genisesintermedia (GENI), which we consider an absolute textbook classic act of stock manipulation.
THE PUMP AND DUMP SCHEME
AN EXCLUSIVE REPORT BY ASIAVEST INVESTIGATIVE SERVICES
This web site has provided a great deal of information on shorting and the short and distort scheme, but there is another side to the coin, that we have not covered and that is the pump and dump scheme. In many respects, the pump and dump scheme can have an even more devastating effect on investors, than can the short and distort scheme. From this writer’s perspective, investors can see the short attack coming, but the pump and dump tends to take investors by surprise. For as many short attacks as there are, there are just as many pump and dumps. The vast majority of these fraudulent schemes seem to fly under the radar screens of the SEC and other governmental regulatory agencies.
Just what is a pump and dump? The common pump and dump is to take a stock and thru a variety of fraudulent actions, manipulate the price of the stock to an inflated value. Once the price has reached its maximum potential, it is then sold off in large blocks. Once this happens the price of the stock immediately drops by double-digit percentages leaving innocent stockholders with dramatic losses. Generally there are two types of pump and dump schemes, the immediate and the long term. The immediate occurs when someone releases false information, generally thru a media release, with the specific intent of manipulating the price. This could be the company itself, or an outsider. The specific intent is to stimulate interest in the stock, attract buying, and cause the price to rise. Scenario, the fraudster buys a stock at lets say $5.00 a share, he/she then releases some false information like the company has just signed a multi-million dollar contract, buyers start buying, the price climbs maybe 60% to 80% within hours, the fraudster sells, and the price drops to even lower than where it started. This type of manipulation will almost immediately attract the attention of regulators but often times, after it is too late. The company itself rarely orchestrates this type of pump and dump.
The long term pump and dump is generally a company-orchestrated manipulation, which will often result in a class action lawsuit and eventual regulator intervention. The scenario is an intentional manipulation of the corporate stock over a period of time, which could be anywhere from three months to as long as two years. The company releasing profit projections, which reveal an untrue projection of upcoming quarterly revenues, could initiate a short-term pump and dump. Glowing revenue projections attract new buyers and the stock price goes up. As the price of the stock increases, insiders sell, reaping inflated profits. After two months, the company will issue adjusted revenue projections reflecting “canceled orders and a weaker than expected economy”. We recently investigated a case that followed this exact same pattern. The stock was trading at $5.15 per share and after the inflated revenue projections were released, the stock rose to $22.00 per share in a matter of a month. Insiders sold off 150 million dollars of stock at between $18. and $21. before restating their earning projections and watching the stock fall over a period of days to $4.85. During the unrealistic highs, every company Director sold off stock, and there was absolutely no attention given by regulators. Fortunately for innocent investors, a class action lawsuit was initiated and eventually this will attract the attention of the SEC.
One company that we have watched closely was a company called Genisesintermedia (GENI), which we consider an absolute textbook classic act of stock manipulation. GENI was not only a perfectly executed pump and dump scheme it was also the target of a professional organization of illegal short sellers. GENI was such a well-coordinated scheme that even most company employees were unaware that their company stock was being manipulated. The manipulation of GENI stock involved everything from paying off stock analysts to alleged bribes to well know media analysts who recommended the purchase of the stock numerous times on financial news programs. They had everything going for them including television and the print media. The stock price rose to $27 and was split three for one. After the split, the stock rose again to over $20 and was preparing for another three for one split, when the scheme collapsed. The manipulation of GENI involved corporate insiders, brokers, market makers, media personalities, bankers, off shore entities, and even an international arms dealer. It took the SEC over one year to finally take action. When they did take action, there was a trading halt. When the stock began trading, it was trading in pennies within a matter of days. The manipulation of GENI resulted in multi million dollar losses to brokers and investors. It also caused the failure of a major brokerage house and tainted a European traditional bank with scandal. It also resulted in millions of dollars in profits for the manipulators and for the short sellers. At the time of this writing, GENI was trading in the pink sheets at .0001 per share. Its corporate officers had turned their efforts to new corporate entities, the SEC was investigating and a major class action lawsuit had been filed.
The question with GENI is, why was the scheme allowed to continue for as long as it did? Why was the SEC reluctant to step in and protect investors, even though they had been alerted months in advance of the obvious scheme and criminal activity? Were government officials corrupted? Members of the media certainly were. Members of the Wall Street community certainly were. Why were no criminal indictments handed down? Why are the perpetrators of this criminal enterprise allowed to involve themselves with other publicly traded companies? Why were the ill-gotten gains of this criminal enterprise not repatriated from off shore bank accounts in Bermuda and the Cayman Islands? These are questions that every investor should be concerned about. The Enron scandal is considered kids play in comparison to the daily frauds committed in the world of public companies. Enron, in our opinion was not even close to the daily occurring criminal manipulation of public companies.
The next time you see a company making claims that appear unrealistic or if you go to a public message board and see postings such as, “NEW CONTRACTS BEING SIGNED”, THIS STOCK IS GOING TO GO THROUGH THE ROOF” or you look at a .10 stock and see analysts saying $5.00 in three months, be very cautious and consider that type of information as nothing more than a red flag. Be wary of hipsters and touts. There are no free lunches, and often times, what you see is not what it seems. Investment decisions should be based on company fundamentals and independent in-depth due diligence.
Disclaimer: Asiavest investigators who specialize in securities fraud wrote this article. The article is intended to give investors an insight into the possible pitfalls of investing. It has been written so that a layman can understand it. The information contained in the report is considered reliable although there are no explicit or implied warrantees as to the specific accuracy of the information. Much of the information was garnered from media reports and investigative resources. The information contained in this report is proprietary information and as such is protected by copyright laws. This report cannot be reproduced or retransmitted in anyway without the written permission of Asiavest investigative Services-Securities Fraud Division. Asiavest is one of a select group of companies specializing in securities fraud and plaintiff litigation support
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