Jordan Belfort, a former 1980s pump-and-dump stock scam artist who wrote a best-selling book and had a rollicking Martin Scorsese film made about his misadventures is the subject of tonight’s CNBC show American Greed. It turns out that while Jordan’s reign of scams is over, the SEC is still working to eliminate other companies that are trying to manage the same con.
The basic scheme involves microchip stocks that the shady brokerages can manipulate for their own profit. They sell the stocks to unsuspecting investors. The stock then climbs impressively with the hype (the pump,) and then the brokerage dumps the stock, making it basically worthless.
Where do these stocks come from?
They are usually firm with legitimate ticker symbols that are currently dormant, leaving themselves open for Belfort-types to buy and manipulate for their own gain. Since 2012, the SEC has suspected over 800 of these “zombie,” stocks with a crack-down on microcaps, so they are constantly on the lookout for this type of behavior, but the best way investors can protect themselves is to do research on the stock they’re buying instead of relying completely on the information from a brokerage.