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Penny Stock Fraud: De Maison’s Pump & Dump Scheme

Penny stocks are highly deceptive stocks and people with risk-bearing capacity can only end up purchasing these stocks. These stocks are suspected for the reason of their volatility and high susceptibility in the market. You can think about getting millions from these stocks by the advertisements and the commitments made by the company. However, it is never sure that the company will turn up to its expectations or become a failure.

There was a scam made by Zirk de Maison from the state of California. He was a scammer who wanted to make the money by easy ways. He created about six public shell companies with a very small capital within 2008-13. He offered penny stocks in the market to make money and the price for each stock was lesser than $5. So, what did this self-described banking merchant have in mind?

Maison was involved in a variety of businesses like diamond trading, social media platforms and gold mining in South America. His companies appeared big deals who could give a lot to the investors but in reality, it was completely empty from inside. He issued stocks to the investors and had a number of conspirators involved in the strategies. The financial brokers used to purchase the additional shares of his stocks revealing that the company has ample of opportunities. They bribed brokers in several American states like NY, CA, Ohio and many others to betray the investor clients and using all their money in the penny stocks. There were many marketing agents involved who had an experience of selling stocks with a full affirmation of getting high ROI.

This attracted many innocent people all over the US to buy these stocks and they lost everything. In the process of becoming rich, there was a big emptiness shown in their bank accounts. De Maison’s fraud was a classic example of Pump & Dump scheme. The brokers convinced a huge number of people to make purchases for the stocks and drove the prices up. They sold their stocks on reaching the peak point of the prices and suddenly, the falling began. The investors were left holding almost nothing. It was approximated that Maison looted almost $39 million through the fake investor money.

FBI investigated this particular case in the year 2013 after Maison accumulated huge funds from the market. These illegal activities were undoubtedly carried out by the set of the people who were involved in this game of ‘Pump & Dump’. There were illegal activities investigated by the Ohio financial consultants who might have victimized Ohio investors. There was an investigation held for the financial records and emails & chats were recorded to get the extensive analysis of the fraud. Investigators were successful in revealing the whole scheme and there was charge filing done against Maison who was spending illegal money with no fear.

The mastermind Zirk de Maison was declared guilty in 2015 for being the mastermind of the scheme. He along with his seven supporters was sentenced to federal prison for the reason of committing this ‘pump and dump’ fraud. There was a parallel civil case conducted by SEC who clubbed up with the FBI for their investigation and assisted the Bureau for finding out the culprits. De Maison and his associates got a huge level of shock after getting caught. There are many other examples looked up by FBI and the government agencies to reduce these crimes and get ahead with the most viable means of catching the culprits of ‘pump and dump’ scheme followed in penny stocks. Micro-cap stocks were never meant for frauds and were actually floated to give a chance to the new companies to get ahead with the stock accumulations and start building something with the support of the investors.

It is actually easy to fraud through penny stocks as there is no public information available about these stocks and pink sheets or OTCBB doesn’t require the companies to give listing about their financial stats. These companies are not associated with SEC (Securities & Exchange Commission) which is a regulatory association for getting the financial reports of the companies. The stocks traded on national stock exchanges or the regional stock exchanges have to enlist their companies’ information. It is a kind of security in the minds of the investors

Try not to be a victim

SEC has given some tips for the investors to avoid becoming victims by the brokers. You can follow these tips and think about the safe investments in your portfolio.

  • Check the Source: The people who work in the stock market may be the paid promoters or insiders of any fake company. It is the responsibility of investors to analyze it well and find out the company’s stats before investing.
  • Stocks Trading Spots: It is essential to know where the stocks are traded. The thin stocks are not traded on the big markets (national or regional) but instead traded over-the-counter (OTC) or in the pink sheets. These are the riskiest platforms as they don’t require the company’s full information and financial stats before investments.
  • High-pressure areas: Think well and don’t fall in the pit dug by the fake brokers or scammers. You must fully investigate the investment opportunities before making the right choice. Ultimately, it is the matter of your hard earned money and you can’t trust any company without thinking over it.
  • Research over the opportunities: Careful research is required before making any investment. Don’t just go for the advertisements, fake market tips and the tips or updates given by the brokerage firms. It is important to check the financial statements of the company and find out the real stats by the state securities regulator to determine whether the company you’re investing in is actually worth. The statements given by the brokers or the companies could be fake and you must carefully deal with such cases to avoid financial losses. There are many people who are still looking to mess up with your money and cheat you by prompting you to make investments.