Micro Thoughts on Swindles in the Market

by Bernie Lumbert

A handy list of fraud factors or indicators of swindle:

• A common practice is hiring a PR flack to spread lies; someone prominent with the local media.
• Hiring a tout to promote your stock, whether as an employee in the shareholder relations department or a contractor given shares as a bribe, if you give out extra shares to distribute to market makers, it is not incentive it is bribery.  It is illegal.
• Clearly number one has to be paying off someone to publish a fake “analysis” or “profile”.   I saw one of these years ago for Frank Mericle who owned Mericle oil. Insiders cracked if his wells had any oil, it would be a "mericle".
• A pernicious technique is giving stock to ‘touts’ and boiler rooms.
• An obvious technique is huge wholesale transactions.
• The most profitable fraud is exchanging debt for equity.
• The sleaziest trick is pretending to be someone famous (“Lynch family)”.
• Pretending to be a ‘look-a-like’. (Georgia Pacific’).
• Ripping off the SBA or economic development boards.
• One of the most difficult to prove, official bribes.
• Good trick is getting a mutual fund to ‘buy into” a penny stock.
• Fake overseas stock transactions.
• Laundering illicit profits thru stock purchases.
• Cutting special ‘lease’ deals with insiders.
• Increasing authorized shares to issue still more stock.
• Buying stock from an unhappy client to silence him.
• Claiming stock buy-back from a “burned” investor is executive acquisition.
• Giving stock to fake holders who claim they bought it.
• Overly generous bonus(s) to ‘friends’.
• Excessively costly perks and bennies.
• Pretending the key officers are buying at market.
• False financials, ‘cooked books.’
• Falsifying the identity of insider seller.
• Issues stock for everything from haircut to shoeshine.
• Excessive nominee & street name to hide ownership.
• Lots of publicity on insider buys but little news of sales.
• Vague about background of officers.
• Swapping trades.  I buy today and you buy back tomorrow.
• Check of officer’s show previous swindles.
• Lawsuits against company paid off with stock.
• Hiding bad news (loss) under ‘recent’ turn to profit.
• Late SEC and state reports.
• Very unwilling to show books.
• Taxes not paid, including workers comp and SS and IRS and state.Minutes of meetings not kept.
• Lots of puff pieces from news media.
• Close of ownership documents shows only partial ownership.
• Excessive number of civil actions against company.
• Failure to announce or hold public shareholder meetings.
• Claiming a profit for part  of a recent financial period.
• Frequent change of auditors.
• Understating loss and overstating profits.
• Re-stating amount of profit or loss.
• Incredible outpouring of ‘news’ releases.
• Playing ‘musical chairs’ with chairmen and CEO’s
• Brokers named by company don’t deal the stock.
• Brokers touting the stock are not named.
• Customers & users & installations are fictional.
• Rosy forecasts for sales are sheer wild lies.
• Optimistic revenue predictions are clearly outrageous.
• Incredible hyperbole used in projections.    Company touts the “system” or  “project”.
• Insiders get stock on credit. (probably unlawful)   Huge volume through churning and wash transactions.
• Stock swaps to increase book value of themselves and cohort!
• Excessive expense for “shareholder relations”.
• Use of ex-media personnel for spin doctors and PR flacks.
• Excessive amount of self-dealing with insiders.   
• Manipulative techniques such as “marking the close.”
• Failure to list stock issued to public.
• Failure to list stock issued with transfer agent.    Sales contract to friend who gets stock for doing it.    Completely non-existent ‘contracts’.
• Fake technology ‘transfer’ deals.
• Patent merit or value overstated.
• Goodwill overstated.
• Only few people run company and change frequently.
• Fake or phony or self staked mineral claims or oil leases.
• Paying off ‘independent’  expert  such as a geologist  with  stock.
• Overstating ‘probable’ reserve of oil or gold.
• Claiming mineral concentrates have assay value at book.
• Memorandum of understanding with pal who claims ‘legions’ of  customers.
• Claiming bogus overseas office or factory.
• Claiming  foreigners as backers that no one can find
• These are some things to look out for if some deal seems "too good to be true."