New York - If you are getting something for nothing or if your adviser is promising you investment returns that seem unusually high, you should be concerned. The most common form of being swindled or ripped off revolves around small stocks. It goes like this:
1) Stock promoters gain control of a small company and purchase large amounts of shares. In some cases, management and company executives are in on the pending swindle and also take insider positions. In some cases, the promoters arrange for the company to initiate an initial public offering (IPO).
2) The promoters then hire public relations and analysts who issue glowing buy recommendations on the stock. Brokers are then hired who then sell the stock to their clients. The brokers generally get additional commissions in cash or stock.
3) As the stock is sold to innocent individuals, the price rises and the promoters begin to sell. The people who were scammed the earliest actually begin to see a profit because their stock is rising. In some cases, they are urged to hold and buy more.
4) The rising pricing then attracts unaffiliated third party investors who noticed the rise in the price of the stock. These investors are not conned first hand but are oblivious to the reasons why the stock is "artificially high" in the first place. The con-artists continue to sell their shares until they own no more.
5) Once the promoters have made their money, everyone including the brokers and public relations people stop pushing the stock. The price generally plunges. Innocent investors are left with big losses.
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