Wednesday, April 11, 2007

Is the Media Ignoring Pump and Dump?

I was critical of the Securities and Exchange Commission in my book (and in other venues), but I must admit that the SEC has been busy lately against pump-and-dump stock operators.

Just today, the SEC announced administrative action against a Florida brokerage, in a boiler room scheme involving offshore accounts. This case is interesting for several reasons, including the use of the Patriot Act to snare stock-related money laundering.

This and other cases, which you can see in regional newspapers almost every day, leads me to believe that pump and dump scams are alive and well.

Yet I have not seen much in the way of press coverage of this trend. Incidentally, if it is not a trend, if for the first time in history pump-and-dump has been wiped out -- and I don't believe that for a moment -- that's also a story.

At times like this I think about Mark Cuban's bloviating about his Sharesleuth website, which he claimed was a new "business model" that could be used to hone in on stock fraud. By "business model" he means flushing journalism ethics down the toilet, by trading in advance on Sharesleuth's stock picks.

In practice, Sharesleuth has been a major dud, focusing on just two related stocks since it was established last July. Sure, there are dozens if not hundreds of crappy stocks out there, but Sharesleuth must be selective in its approach, picking them not on merit but on "shortability."

The vast majority of stocks involved in pump-and-dumps are difficult if not impossible to short-sell. So are many stocks that are not outright frauds, but simply doggie. The slim pickings generated by Sharesleuth demonstrate the shortcomings of this approach.

Since Cuban's venture is crapping out, I guess that leaves the job of policing microcap stocks to the financial media, and-- with some notable exceptions -- lately we've not been doing a very good job.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

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