Beware of "Hot" Stock Tips on Your Cell Phone

You get text messaged on your cell phone. You check it—and it's not from anyone you know. Instead, it's an unsolicited promotion for a low-priced "hot stock."  The short message includes a stock symbol and reads:  HOT BUY. 200% Profit Mon. 100% IN 2WKS.  You've been cell phone spammed!

 

We are issuing this Alert because it is aware of numerous instances in which stocks are promoted through cell phone text messaging.  With email filtering systems becoming more effective, spammers are now turning to mobile text messages to get their messages out, resulting in significant increases in spam text messaging. Unfortunately, spam blockers for text messaging software may not be as effective as email filters. Even worse, cell phone customers may have to pay for the spam text messages they receive.

 

Be advised that in many cases the people behind these messages are likely to be paid to promote the stock or own some of the stock themselves. They are hoping that you and other investors will buy the stock, creating demand and causing the share price to go up. While you're holding your stock, the fraudsters sell their shares when the price peaks. Before long the stock price falls, and you lose money.

 

New Tactic, Old Scam

 

Cell phone text messaging to hype a stock is a wireless-age version of the old Pump and Dump scheme.  While the technology has changed, the scam has not.  "Pump and dump" schemes involve somebody recommending a company's stock through false and misleading statements (the pump).  Misled investors then buy the stock, creating demand for the stock and often causing its price to soar. Fraudsters then sell their shares off (the dump), usually leaving investors with worthless or near worthless stock. 

 

Spotting Cell Phone Text Message Scams

 

The first tip-off that you're being scammed is that the message is unsolicited, which raises the obvious question: Why would a total stranger text message you about a really great investment opportunity?  The answer is that there is no such opportunity for you.

 

Brief as they are, spam text messages frequently include:

  • Price targets or predications of tremendous run up in price: "200% Profit in a month"
     
  • A trading symbol and a stock price—often a price well under 50 cents. Such low-priced stocks often are quoted on the Pink Sheets, a centralized quotation network for OTC (Over the Counter, that is, non-exchange listed) stocks. You should know that no listing requirements are necessary for a stock to be quoted on the Pink Sheets.  These stocks also are often thinly traded, making it easier for a fraudster to manipulate the price of the stock.
     
  • Pressure to invest immediately.

Don't Be Taken In

 

The best way to avoid being taken in by text message scammers is to ignore the message. A cardinal rule of investing is never rely solely on information you receive through an unsolicited source, be it a text message, email, fax, or phone call. Any stock spams you receive may be forwarded to FINRA at spam@finra.org.

 

Regulation of Unsolicited Text Messaging

 

Legislation and rules have been created to safeguard U.S. citizens from unsolicited text messaging to cellular phones. Under the Telephone Consumer Protection Act (TCPA) and applicable Federal Communications Commission (FCC) rules, unless you have given your explicit consent, generally no one may:

  • Send a commercial text message from an Internet-based account to your wireless phone; or
     
  • Use an automatic dialing machine to call your wireless phone number—including to send a text message to that telephone number—unless you have given prior express permission for the call.

In addition, if you have registered your cell phone on the National Do Not Call Registry, no one may make a solicitation to that telephone number, unless you have an established business relationship with the caller or have given prior permission to caller to contact you.

 

For more information regarding anti-spam legislation and rules as they apply to text messaging, see the FCC's Unwanted Text Messages on Wireless Phones and Other Mobile Devices.

 

Stopping Unwanted Text Messages to Your Cell Phone

 

You may not be able to stop all unwanted text messages, but there are steps you can take to reduce the likelihood of receiving mobile phone spam:

  • Register your cell phone number on the National Do Not Call Registry. You may register online at www.donotcall.gov, provided you have a working email address, or by phone by calling toll-free (800) 382-1222 from the number you wish to register.  More than one telephone number may be registered.
     
  • Since many states now have their own do not call lists, contact your state's consumer protection office or the public utilities commission (PUC) to see if your state has such a list, and if so, register your cell phone number.
     
  • Do not "opt in" to receive third-party offers. One list used to send text message advertising was built from customers who purchased ring tones and other special cell phone services and opted to receive third-party messages.
     
  • Some text message solicitations allow you to "opt out" of receiving future messages by contacting the company.  However, opting out is rarely an option in dealing with fraudulent messages.
     
  • Go to your cell phone carrier's website or call the carrier's customer service department for tips on avoiding text message spam. The FCC recommends contacting your cell phone carrier in the event you do receive an unsolicited text message, so they are aware of the extent of the problem. 
     
  • Consider proprietary spam-blocking filters to protect your cell phone, similar to filters available to computer users.  It's a good idea to check with your cell phone provider before using a filter, and be sure to research any product before purchasing it. 


Additional Resources

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Last Updated: 12/13/2005