SEC makes inroads against financial spam
Showing it is making good on a promise six months ago to crack down on spam intended to take advantage of unsuspecting investors, the Securities and Exchange Commission on Thursday suspended trading in three stocks it said were "susceptible" to e-mail promotion schemes.
The stocks, all listed on the Pink Sheets market, were Alliance Transcription Services, Prime Petroleum Group and T.W. Christian. Each displayed traits making them likely candidates for spam campaigns, says John Reed Stark, chief of the SEC's Office of Internet Enforcement.
Financial spam campaigns are classic pump-and-dump operations. The perpetrators buy a stock, spread false promotional information about it in unsolicited e-mails in an attempt to boost the price, then sell into any resulting rally.
"The SEC is doing a public service not only protecting investors, but keeping the nuisance down for the public in general," says Gregory Lawrence of Baltimore-based law firm Conti Fenn & Lawrence.
The companies named by the SEC have not properly or accurately reported their financial condition and assets, according to the SEC's complaint. Trading will be suspended in the stocks for 10 days. None of the companies could be reached.
The SEC didn't name any individuals in its complaint and didn't indicate whether the stocks were used in spam campaigns.
The SEC is beginning to make serious inroads against financial spam. Financial spam accounted for 30 percent of all spam in the last half of 2006, says Doug Bowers, senior director of the anti-abuse engineering group at computer security firm Symantec. But financial spam fell to 21 percent of total spam in the first half of 2007 and was down to 13 percent by the end of September.
While financial spam is falling, spam overall is expanding, Bowers says. About 70 percent of all e-mail now received by the average computer user is spam, he says.
Meanwhile, spam-related investor complaints to the SEC's Web site are down nearly 50 percent in the past year.
Financial spammers are getting the message the SEC has the tools to track them down, and civil punishment often follows, Stark says. By using e-mail promotions, the perpetrators give investigators another trail to follow, he says. Since targeting such schemes in March, the SEC has suspended trading in 39 companies and pursued punishment in several.
For instance, the SEC in September settled civil charges against Michael Paloma, who with a partner engaged in an alleged market-manipulation scheme involving spam. Paloma agreed to disgorge his profits and separately plead guilty to criminal charges.
Investors can help regulators curb financial spam by not buying the touted stocks, says David Gourevitch, a securities attorney based in New York. "You have to wonder what investors are doing buying ... based on spam," he says. "Most of us delete this stuff viscerally."
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