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U.S. Securities and Exchange Commission

Tips for Avoiding Stock Scamson the Internet

(Press Version: Full document available at http://www.sec.gov/investor/online/pump.htm)

One of the most common Internet frauds involves the classic "pump and dump" scheme. To steer clear of potential scams, always investigate before you invest:

  • Consider the Source   The people touting the stock may well be insiders of the company or paid promoters who stand to gain if you trade.

  • Find Out Where the Stock Trades   Stocks that trade in the OTC market — and are quoted on the OTC Bulletin Board or the Pink Sheets — tend to be among the most risky and most susceptible to manipulation.

  • Independently Verify Claims   Be sure to verify with an unbiased source any claims about new product developments, lucrative contracts, or the company's financial health.

  • Research the Opportunity   Always ask for — and carefully read — the prospectus or current financial statements. Check the SEC's EDGAR database, and contact your state securities regulator for any information they may have.

  • Watch Out for High-Pressure Pitches   Beware of promoters who pressure you to buy before you have a chance to think about and fully investigate the so-called "opportunity."

  • Always Be Skeptical   Whenever someone you don't know offers you a hot stock tip, ask yourself: Why is this stranger giving me this tip?

For more information on how to use the Internet to invest wisely and avoid fraud, be sure to visit our Internet and Online Trading web page.


Modified: 01/11/2005