I tried to get rich on stock spam

Then there's Harris Exploration, the aforementioned mining company, which is run by a group of people who may be as experienced in finance as they are in geology. Joseph Meuse, a director of the company who is also listed in Nevada incorporation documents as its president, secretary and treasurer, is involved in several other companies as well. He is a managing member at Belmont Partners LLC, an investment bank specializing in reverse mergers. These are mergers that can allow new companies to go public without having to make an initial public offering, because they merge with existing public companies. He is also a representative of PacWest Transfer LLC, a stock transfer agent; such agents are sometimes asked by companies to keep track of ownership of stock and to provide stock certificates. PacWest Transfer is Harris Exploration's stock transfer agent.

Meuse has been involved with mining companies before. StockPatrol.com, an Internet watchdog, has previously reported his tangential relationship, as the former director of one of the involved companies, with what appeared to be a group of mining companies of questionable value that were heavily promoted at the time of StockPatrol's report.

Whatever these companies may be, their stocks probably sold like hotcakes the day after their stocks were first spammed. A study conducted by Daniel Peng, a doctoral student in computer science at Harvard, found that trading volumes in spammed stocks increased as much as 10-fold in the days immediately following spam campaigns.

The spammers, meanwhile, are selling. The price of spammed stocks, according to Laura Frieder, an assistant professor of management at Purdue University, peaks within hours of the start of trading on the first trading day after the first e-mail is sent. The spammers can start selling almost immediately and realize a profit, because they have a head start. Having bought their stock prior to that initial e-mail, they've already driven the price of the stock up considerably before the first spam blast. Whoever sent me the spam for each of my eight companies probably sold their stock the day I bought it.

Can anybody else make money off these stocks? Joshua Cyr runs the Web site Spam Stock Tracker, on which he keeps track of the share prices of stocks for which he receives spam. Over a three-month period, said Cyr, "the stocks, almost every one of them, eventually plummeted ... The[y] might have seen a bit of an improvement in the short term ... but for the most part, you were guaranteed to lose money."

Frieder, who conducted her own study of penny stock spam, concurs with Cyr about the long-term prospects for spammed stocks. But she found a downward trend in the short term as well. Frieder tracked results for 48 hours after the initial touting and found that "returns are significantly negative." During that two-day period, the spammed stocks underperform penny stocks that haven't been spammed.

For somebody who isn't in on the scheme prior to the spam blast, the window of profitability is very narrow. If you jump on the stock the minute it is touted and sell it within hours, you might make a profit. But remember -- as in Vegas, when it comes to stock spam, the house always wins. Can you really be sure that the e-mail in your in box is the first e-mail sent out, and not the millionth? If it's not the first, you're going to lose.

Penny stock spam is a pyramid scheme, after all, and for it to work there must be more losers than winners. According to the experts, some of those losers are exactly who you think they are. They're suckers.

"It's a bit of human nature to be always yearning for that opportunity that's probably too good to be true," Cyr said. "I think a lot of people, they probably know it's too good to be true, but they're willing to put a few dollars toward it, just to try it out and see what's going to happen."

"Nobody forces somebody to buy a spam stock," Coulson noted. "You send out 5 million [e-mails], you find three dumb people. Anybody who buys a spam stock is just really dumb." Or, he added, "they're hoping for a greater fool." Those are the special class of suckers, like me, who know something is a pyramid scheme and still think they can beat it.

Speaking of dumb people, I did pretty well with the stocks I picked, at least compared with what Frieder and Cyr had led me to expect. I was lucky enough to see one of my stocks, Healtheuniverse (HLUN.PK) hold steady at 8 cents, and three increase in value. Aerofoam Metals Inc. (AFML.PK) went from 12 cents to 30 cents, Apparel Manufacturing Associates Inc. (APPM.PK) went from 15 cents to 28 cents, and Harris Exploration went from $1.50 to $1.62.

None of those were enough to keep the losses in my other stocks, like Medical Institutional Services Corp. (MISJ.PK), which lost 58 percent of its value, plummeting from $1.94 to 82 cents, from dragging down my entire portfolio. By the end of the experiment, I had lost a virtual $2,250, which amounted to 25 percent of a portfolio that had begun the week at $8,990.

Remember, though, that I waited a week to sell those stocks. Next time, I'll know better. I should've bought and sold them within hours of receiving the first e-mail. That e-mail I just received about West Excelsior Enterprises looks promising.

Story finder (3 ways to search Salon)

Search terms:

Salon the Web

Salon Directory (browse by topic)