मुँह में राम राम बगल में छुरी
It is well known that several hapless novice investors have fallen victim to the unscrupulous tactics adopted by some PMS Fund Managers.
These PMS Fund managers paint a rosy picture of the prospects of junkyard stocks and recommend that the public grab them when they are still available at bargain basement prices.
This entices the novices to make a beeline for these stocks.
The stock price surges upwards like a rocket, fulfilling the prophecy of the fund manager and gives him or her Hero status amongst the novices.
Thereafter, unknown to anyone, the PMS Fund manager surreptitiously dumps his holding of the stock and encashes massive gains for his own subscribers.
Later, when the euphoria runs its course, the stock price crumples and the novices are left with colossal losses in their portfolios.
This nefarious practice of the PMS Fund managers is described in Dalal Street as “मुँह में राम राम बगल में छुरी” or “Pump N’ Dump”.
According to a report in the Deccan Chronicle, “PUMP & DUMP Operators are working with Impunity under Sebi nose”.
SEBI on warpath
Thankfully, SEBI has taken cognizance of this nefarious practice and vowed to make the PMS Fund managers pay the price for their misdeeds.
According to top-secret sources accessed by Ashish Rukhaiyar of The Hindu, SEBI has given stock exchanges the permanent account number (PAN) of certain PMS managers and asked the bourses to find out if the trades done by such investment advisors, if any, were in line with the investment advice given by them to their clients.
Unfortunately, the names of these PMS Fund managers has not been disclosed.
“If the portfolio manager uses his discretionary powers to take a certain position in a particular stock for his client, there cannot be a complete opposite view taken when trading on his own behalf,” an unnamed person was quoted as saying.
“Portfolio managers advise clients through various medium and it needs to be checked that there is no conflict of interest in letter as well as in spirit even though current regulations mandate such advisors to disclose their positions, if any, in the stocks that they recommend,” the person added.
SEC has already brought the hammer down on ‘Pump N’ Dump’ schemes
The Securities Exchange Commission (SEC), the USA avatar of SEBI, has already launched a crackdown on ‘pump n’ dump’ schemes.
I reported this as far back as in Feb 2016 (see Even Reputed Analysts Indulge In Pump N’ Dump. They Publicly Recommend Buy Of A Stock While Privately Dumping It).
I quoted from several examples of recommendations issued by reputed analysts from Deutsche Bank, Merrilyn Lynch, Salomon Smith Barney and others where the PMS (Hedge) Funds were doing the exact opposite of what was being recommended by the analysts.
Unfortunately, despite best efforts by SEC, the alleged practice of ‘pump n’ dump’ is continuing unabated in international markets.
Twitter tells me that the "Top News" in $OSTK is an article that ran last December. This sort of sums up how Overstock and its pumpers recycle the same crap over and over again.#PumpNDump #Fraud pic.twitter.com/hbHEAKLI8x
— Gary Weiss (@gary_weiss) November 26, 2018
Anyone who shills anything is a pump n dump. And by definition a ponzi artist.
— BTCWildeOne (@TimmyBLee) November 28, 2018
Shilled to your 200k followers. Manipulation. Pump n Dump. Reported
— Tom Shilleck (@TomShilleck) November 28, 2018
$290 Million Pump-and-Dump Plot in Penny Stocks busted
According to a report in the New York Times, SEC sleuths busted a penny stock ‘pump n’ dump’ scheme involving colossal profits of $290 (Rs. 2000+ crore).
The modus operandi was that the operators owned stock in the companies they were promoting, and also had colluded with officials in those companies to drive up prices with misleading news releases.
When prices rose, the promoters and company officials would sell off millions of shares they controlled, leaving investors with worthless stock.
It was an Internet-driven variation on the pump-and-dump stock manipulation schemes that unscrupulous stockbrokers have practiced for decades, prosecutors said.
“They took advantage of their position as promoters to profit for themselves on the backs of public investors,” the prosecutor alleged.
In yet another case, the SEC nailed an offshore broker for manipulating a penny stock named ‘Cynk Technology’ and causing its stock price to surge an eye-popping 24,000%.
The operator raked in mammoth profits of more than $250 million from selling such penny stocks to gullible investors.
However, the SEC collared Gregg Mulholland, the alleged mastermind and got him to disgorge his ill-gotten gains in the form of a Dassault-Breguet Falcon 50 corporate jet, a Range Rover Defender all-terrain vehicle, two real estate properties in British Columbia, Canada and funds and securities in more than a dozen bank and brokerage accounts.
Student rakes in big bucks from stocks recommendation website
A youngster named Douglas Colt, a law student at Georgetown University, set up a website named “Fast-Trades.com” and issued buy recommendations for penny stocks named Apache Medical Systems ( AMSI), Option Care ( OPTN), American Education ( AEDU) and Artecon.
All four stocks surged like rockets and the youngster pocketed massive gains of more than $345,000.
The SEC pounced on him (and his mother and others) and alleged that they had posted hundreds of false or misleading messages on Internet message boards, including Yahoo! Finance and Raging Bull, in an attempt to draw subscribers to the Fast-Trades site and encourage them to purchase Fast-Trade selections, thus driving up share prices.
Yet another instance is that of “Tokyo Joe,” an Internet daytrading guru, who was charged with “scalping,” or encouraging people to buy certain stocks and then selling them as soon as the buying began.
“We are aggressively attacking fraud on the Internet,” Richard Walker, director of the SEC’s enforcement division said.
“The Internet allows ordinary people inexpensive access to a medium of mass communication, thereby creating an unfettered ‘marketplace of ideas,’” a professor said.
“Nobody should purchase a stock based on a recommendation they see on the Internet from a source they don’t know,” SEC’s Walker warned investors in a grim tone.
Hopefully, SEBI will be inspired by the achievements of the SEC and will bring the unscrupulous PMS fund managers to book ASAP before they can do further damage to the portfolios of hapless novices!