Avoiding stock scams
Don't give into e-mail from unknown senders who encourage you to buy a stock.
NEW YORK (CNNMoney.com) -- The stock market has been breaking records. And wouldn't you know, scam artists have just come out of the woodwork. The National Association of Securities Dealers is warning people to watch out for stock scams via e-mail.
1: How it works
So you open your e-mail and find a letter from Chris, Jessica, or Fran. The e-mail touts a specific investment opportunity and it seems to have been sent to you in error.
Here's an example of what you may receive: "I was pleased to meet you the other day. The deal I was speaking about yesterday involved a company known as [company name]. It's already heading up, but the big news isn't out yet, so there's still time."
Compelled by your good fortune to receive such a good insider tip, you buy the stock. The price rises because maybe a few people have gotten this same email.
But lo and behold, the scammers sell off their shares at this inflated price...and you (and everyone else) is left with worthless stock.
2: Look for the red flags
Usually these e-mails contain misspellings, they're unsolicited. Why would a complete stranger send you an e-mail about a great investment opportunity?
Find out if the stock trades on the Pink Sheets rather than on the New York Stock Exchange or the Nasdaq Stock Market. The stocks on the Pink Sheets don't have to meet as many listing regulatory requirements.
3: Keep on your toes
Stock scams generally follow the news beat. Right now there are a lot of scams involving energy, oil and gas and ethanol, says John Gannon of the NASD.
After Hurricane Katrina, stock scams may have revolved around construction companies or oil stocks.
The bottom line here is that you should never rely solely on information you receive from an unsolicited source - whether it's in the form of an e-mail, a fax, a text message, or a phone call.
4: What to Do
If you are suspicious about an offer or if you think the claims might be exaggerated or misleading, contact the SEC Investor Complaint Center at http://www.sec.gov/.
You can find out if the firm is registered with NASD by calling the BrokerCheck hotline at (800) 289-9999. If you've received one of these e-mails, forward the stock spam e-mails to email@example.com, where they will be reviewed for possible investigation.