SEC to crack down on pump-n-dumped stocks

On the heels of yesterday's news about the FTC cracking down on spyware, comes the news that the SEC has suspended trading on 35 companies being promoted via pump-n-dump spam. [SEC press release]

Forbes magazine is less optimistic about this SEC move than many other journals. In their article Why The SEC Can't Stop Spam, they point out that as long as stock spam is profitable — and it is — spam won't be slowing down any time soon.

Previously, I had always assumed that the companies named in pump-n-dump spams were innocent victims — chosen by the spammer for their cheap prices and low volumes, which would make it easy to manipulate via the fraud. If this is the case, then it's unfair for the SEC to be holding them responsible.

However, last November, I read an interesting article in the Guardian which gives strong evidence that the companies touted in the scams are accomplices, not victims. Either created for the purpose of taking part in the scam, or at least all to happy to be part of the action.

Also of interest: all of the suspended stocks are handled by "Pink Sheets", an electronic securities trading system which is favored by small, thinly-traded securities that don't meet the listing requirements for national stock exchanges. According to the Forbes article, Pink Sheets CEO Cromwell Coulson says that Pink Sheets takes spam seriously, and will block trading on a stock once it receives a verified spam complaint. As for the 35 stocks suspended by the SEC — Coulson they'll be gone for good from Pink Sheets, even after the suspension ends.