A study reported by Lerer (2007) concluded that stock spam moves markets. The researchers found that the average investor who buys a stock during a spam promotion and then sells after the campaign ends up losing about 5.5 percent of his or her investment. In contrast, the spammer who buys stock before the spam campaign and sells during the campaign makes a 5.79 percent return.
The federal government made headlines on March 8, 2007, by cracking down on dozens of penny stocks whose prices have been manipulated. The success of Operation Spamalot, conducted by the Securities and Exchange Commission (SEC), still will not end spam. There are two reasons spam won’t go away: It works and it’s profitable. Despite increased enforcement, warnings, and federal laws, spam is not only continuing but flourishing. And there’s no reason to think the SEC will be able to do much to stop it.
Stock spam has gotten much worse in the last few years. Stock spam messages rose 120 percent during the 6-month period ending March 2007. In total, stock-related messages make up about 20 percent of all e-mail spam. The SEC estimates that 100 million stock spam messages are sent each week.
If you are not so lucky, you can end up in jail. Ralsky and Bradley sent billions of illegal e-mail advertisement to inflate the price of Chinese penny stocks and then reaped the profit. Both were sentenced, together with their accomplices, to several years in prison.
Secure Computing Research saw a 50 percent increase in spam. Spam now accounts for nearly 90 percent of all e-mail. The amount of image spam, which today accounts for 30 percent of all spam, tripled during the last two years.
Q: Why might people buy the penny stocks promoted in an e-mail message from an unknown source?