| A company goes
public and the company’s stock promoter issues himself
millions of shares at no cost, or just fractions of a penny.
A prospectus is then prepared containing all the “facts”
about the stock offering. The prospectus discloses that the
company has little or no chance to succeed and the stock is
offered to the public at an arbitrary number, usually a couple
pennies. Note: this number is hundreds or even thousands of
times more than what the promoter got his stock for.
The promoter then sets up a telephone calling
room, “boiler room”, to hype the stock. These
rooms are filled with high-pressure callers that fabricate
the facts and push the stock making unreasonable guarantees.
When enough investors fall for these claims, the demand for
the stock artificially inflates. After the share price reaches
a certain price point, the insiders sell out and the stock
price plummets.
The majority of investors don’t know
what’s happening and do not sell before most or all
of their investment has been lost. Meanwhile the company goes
out of business with the insiders and promoters lining their
pockets with the proceeds.
|
