In the video above Timothy Sykes does an excellent job describing how to spot a stock scam from a legitimate investment opportunity. As Timothy explains, there approximately 8500 of these “scam stocks” trading on the OTC Bulletin Board that utilize “pump and dump” strategies to drive the share price of their stock up.

Please note that the marketing tactics of these companies may be overly aggressive, but for the well-informed investor, trading these types of stocks can be lucrative if you know what to look for. As Tim further describes, he has no qualms investing in what he considers horrible companies, but plays the odds when noticing a penny stock jump from 100-200%.

One must always take into consideration that the hot penny stock that was just recommended was most likely aimed at individuals who are susceptible to impulsive buying tendencies based on reading “jazzed up” marketing materials. Those individuals have not done their due diligence and read the fine print contained in the marketing materials. Other times, a chop shop will pump a promoted stock to prospective clients to raise the share price on sparsely traded penny stocks over the telephone.

Always remember that a stock being promoted (by e-mail, message boards, cold calling) is not putting money back into the company, research and development, staff augmentation, mergers and acquisitions, etc. The independent marketing firms pumping these stocks are making out like bandits! Always do your research before moving forward with a “marketed” investment.

Kind Regards,

Nicky Papers

It’s hard to pinpoint the catalyst that caused markets to plummet, the exposure of unethical practices in the financial world, and the credit crisis that we are in today. Is it because working in financial services (in many instances) had become too profitable or is it because Americans (as consumers) are weak and gravitate toward exotic s equities trades (from a hotshot broker in New York!) and complicated mortgages structured by now defunct banks. Asking a question like that is like asking what came first, the chicken or the egg?

One of my favorite movies of all-time is Boiler Room, as it shows an accurate representation of chop shop culture and the attitudes/behavior of many brokers on a trading floor. For me, Boiler Room glamorized the business and influenced me toward working within the financial services industry.

When I was 21, I responded to a Craigslist ad to become sponsored by a “retail equities brokerage” where I would learn the business through cold calling and studying for my Series 7. The opportunity seemed like it would pay dividends down the road so I kindly accepted the offer.

In just a few months working at this firm I observed the following:

1. I was becoming an animal on the phone. Being trained by sharks caused me to be relentless and not take “no” for an answer.

2. There was no dress coded or sense of office etiquette. Most of us, (myself included) rocked the classic head-to-toe Puma jumpsuit. (Typical guinea shit.) We had dice games in the conference room after the markets closed.

3. There were no analysts at the firm. Brokers pitched what they liked or stocks with preexisting “call scripts”. There was one speculative stock (Telkonet) that was pitched harder than anything else. It’s ticker symbol (TKO) opened up more accounts on a first trade basis than more commonly known stocks, because it’s ticker sounded “cool”.

4. Everything I did was fake. I used a fake name. I pretended I was a senior broker. I held conversations in topics I knew nothing about. (Fishing and hunting?) I told prospects I would call them back “later on down the road”, in-turn I passing them off to a British guy (heavy accent) where he’d read my notes and open the account. The client was none-the-wiser.

I never ended up passing my Series 7 exam. The firm tried selling me on reasons I should keep studying and “dialing for dollars”. Frankly, I was sick of being an actor on the telephone getting leads for someone else. I ended up parting ways with the firm on good terms. As a former “chop shopper”, where would I go next? For me that was an easy decision, I became a mortgage broker.