Operation Spamalot

The U.S. Securities and Exchange Commission suspends trading in 35 companies touted in spam e-mail campaigns.

The trading suspensions are part of a stepped-up SEC effort – code named “Operation Spamalot” – to protect investors from potentially fraudulent spam email hyping small company stocks with phrases like, “Ready to Explode,” “Ride the Bull,” and “Fast Money.” It’s estimated that 100 million of these spam messages are sent every week, triggering dramatic spikes in share price and trading volume before the spamming stops and investors lose their money…

Recent trading clearly demonstrates how spam campaigns can affect stock prices and trading volume. For example:

A spam campaign in Healtheuniverse, Inc. (HLUN) stock began on Sept. 4, 2006, with emails incorporating a Healtheuniverse press release proclaiming that HLUN was “focused on being the first to commercialize stem cell applications in the $15 billion worldwide plastic surgery and cosmetic surgery market.” On Sept. 7, 2006, HLUN closed at $.12 per share on trading volume of 3,000 shares. The spam campaign accelerated, and HLUN shares spiked to $.22 per share on Sept. 11, 2006, with over 2.2 million shares trading hands. By Sept. 22, 2006, the closing price had dropped back down to $.11.

The amazing fact is that these spam marketing campaigns actually work. Who on earth are the people who buy these penny stocks after getting spam e-mails? Maybe close relatives of the people who send “advance fees” to Africa after falling for Nigerian 419 frauds.

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