Sign up for The Media Today, CJR’s daily newsletter.
On a typical day here at the Audit, we spend our time scouring television, print, radio, and the Internet in our ongoing quest to better understand how people get their business news. But as it turns out, we may have been setting our bar a little too high. According to a recent article in the Economist, many folks appear to be getting their financial news from … unsolicited email. That’s right, spam.
In the August 24th article, the Economist sheds some light on a phenomenon we’ve been wondering about for months — specifically, the advent of all those emails, which wash up in our inbox every day, touting one minor stock or another. According to the Economist, it’s all part of a “pump and dump” scam, in which spammers buy up stock in a real company and then send out millions of unsolicited “stock tips” via email, advising readers to buy shares in said company on a certain day. Typically, after the spam goes out, the company’s stock price goes up. The spammers sell. The stock price plummets. And investors lose lots of money.
All of which, according to the Economist, tends to happen without the company’s consent or knowledge. Cue the examples.
“HLV Capital is a company that prides itself on its share-trading expertise,” reported the Economist. “That must have made it particularly galling when the publicly listed company fell victim to a popular trading scam this month that knocked 37 percent off its share price in a few days. Written with the usual blizzard of capital letters and exclamation marks, spammers issued unsolicited emails telling investors to buy HLV Capital’s shares ‘First Thing’ on August 8th. ‘It’s going to explode!’, the headline said. What the tipsters didn’t say was that anyone left holding the stock days later would feel as if a grenade had gone off in their hands.”
The Economist went on to highlight the findings of a recent study by two computer scientists in Germany, who concluded that this pump-and-dump practice “is widespread and does have an impact, at least in the short run, on share trading and prices.”
We’re not surprised that enterprising spammers would send out mass emails touting a particular stock. But we are somewhat flabbergasted that people would not only read financial “news” from an unknown source, but also act on it.
“Penny stocks are considered ideal for spammers because they trade in low volumes, allowing a small amount of investment activity to generate wild swings in value,” added the Economist. “This gives tipsters the greatest opportunity to make a profit. Generally, they create excitement about a stock that they also invest in, only to sell it after they successfully push up the price. That can set off a wave of selling which eventually depresses the share price.”
And subsequently depresses those of us who had yet to consider spam as a possible news source on financial markets.
Has America ever needed a media defender more than now? Help us by joining CJR today.
