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Consumer Reports


New scam pretends to be wrong number offering stock tips

http://www.jewishworldreview.com | (KRT) Gotten any strange phone messages lately?

Here's a word to the wise: If you get one that sounds like a wrong number - maybe a call from Debbie or Wendy to a buddy named Tracy or Steph - and you happen to overhear a hot tip about a stock whose price is about to explode, don't call your broker or go online to buy a few shares.

Call the Securities and Exchange Commission. You've just encountered the latest investment scam, which in the last week appears to have targeted thousands of potential victims.

SEC officials say the slickly scripted calls - in one version, "Wendy" apologizes for chewing while she talks - are apparently a new twist on an old scheme called a "pump-and-dump."

In a classic pump-and-dump, false or exaggerated information is spread about a little-known company whose stock trades cheaply, perhaps for a few cents or a few dollars.

The chumps buy it, pumping up the share price. The fraudsters dump their shares at a big profit. The victims are left holding the bag - overpriced shares that sooner or later will return to a realistic market value.

It's too soon to tell how many people have fallen prey to the new misdirected phone-message version of the scam. But hundreds of reports from around the country, and rising share prices and inflated trading volumes of the targeted companies, have clearly raised alarm among state and federal officials.


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On Tuesday, the SEC's Web site posted an investor advisory on the calls. Wednesday, Susan Wyderko, director of the SEC's office of investor education, said her office received 33 calls within 20 minutes after a Miami television station reported on the scam and ran her unit's phone number.

"They are just coming in through every conduit, through phone numbers all over the commission," she said.

The scam seems to have worked.

On July 27, 180,000 shares traded of one of the target companies, Power 3 Medical Products of the Woodlands, Texas. The stock, traded via the Over-the-Counter Bulletin Board, closed that day at $1.99.

On Tuesday, almost 5.7 million shares were traded, and Power 3 shares sold for as much as $4.88 apiece.

Power 3 is a real company with real prospects, according to its own public statements. It has clinical studies underway of tests it says can analyze proteins in blood serum, which may help with the early identification of breast cancer and neurodegenerative diseases, such as Parkinson's.

On the other hand, it has no sales so far of the diagnostic products, and only about a dozen full-time employees.

"The company is bewildered by this," said Irving Einhorn, an attorney who represents Power 3 and who calls the scam "the worst thing that could have happened to the company."

"They've been asked if they hired anybody to do this, or know who's doing this," Einhorn said. "They have no clue."

Einhorn said Power 3 insiders aren't even in a position to profit from the scheme. Because of restrictions on the shares they hold, it will be months before any of them can be sold, whatever the price.

Wyderko said there's no reason to assume that insiders are connected with a pump-and-dump, which can be profitable to anyone who holds a company's stock. "Often, the companies are as much victims as the shareholders," she said.

As a matter of policy, the SEC won't discuss details of an investigation, or even confirm that one is underway. A spokeswoman for the Oregon attorney general's office identified the companies mentioned in the phone calls, in addition to Power 3, as Five G Wireless Communications, Maui General Store, Donini Inc., and Food Innovations Inc.

If you received one of these calls, the SEC wants to know. Call 1-800-732-0330, go to www.sec.gov/complaint.shtml, or e-mail enforcement@sec.gov. Include the date and time the call came, the phone number it came to, the name of the stock it mentioned and the origin of the call, if you have Caller ID.

Whatever "Wendy" says, don't buy any stock. Power 3 was already down Wednesday, to $3.47. It may be in for a harder fall.

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