I RECEIVE at least five e-mails per day recommending shares of small US companies that no one ever heard of.

All trade through a computer network called 'over the counter pink sheets'. These are US penny stocks that are not listed on any exchange. The trading volume is light and price manipulation is easy. It's risky.

To me, these e-mails always looked like an obvious 'pump and dump' scheme.

Someone buys shares of a small, thinly traded stock. Then they send out a few million e-mails saying it is a wonderful company.

When the suckers buy, the spammers sell for a profit and before you can say 'spam scam', they are out looking for the next stock to hype. There are plenty to choose from.

Academic study

Two professors have done a study showing how it all works. The title is 'Spam works: evidence from stock touts and corresponding market activity' by Professors Jonathan Zittrain from Harvard Law School and Laura Frieder from Purdue University in the US.

They focused on the 100 million weekly e-mail messages that tout penny stocks. These make up about 15 per cent of the 750 million spam e-mails that travel through cyberspace every week.

The authors looked through more than 26,000 unsolicited e-mails that Professor Zittrain received from January 2004 to July 2005, plus samples from 1.8 million spam e-mails collected by Nanas, an anti-spam group.

They analysed 300 in detail, taking note of the date the e-mails were received. It is the day most people would buy. The surge in orders boosts the stock's trading volume and as trading hits its peak, the spammers unload.

Think about it. They recommend you buy, but they are selling. It is ethics at its rock-bottom lowest.

They win, you lose

The authors spotted a slight blip in the price just before the mass e-mails went out. That's when the spammers bought.

They typically sell their shares two days later, just when millions of e-mails reach the recipients.

The authors calculate that spam e-mail pushes the stock price up by 4.3 per cent. That becomes the spammers' profits.

The public doesn't fare nearly as well. The authors explain in a 2007 update to their study: ' ...the average investor who buys a stock on the day it is most heavily touted and sells it two days after the touting ends will lose close to 5.5 per cent.'

There you have it. Spammers make 4.3per cent while victims lose 5.5 per cent. Pump and dump works well for spammers, but it's bad for you.

If you receive this e-mail, don't buy

Here is one of the many pump and dump spam e-mails I receive daily.

I thought the 'disclosure' at the end was very complete and even funny.

It is amazing that people read it and still buy.

SNVP is the stock trading symbol for my next undiscovered oil play and it could be a screamer!

Goldman Sachs puts an $80 target on oil, and they were the catalyst for the $150 price last time!

Our last two oil plays doubled on peak volumes. One rose 100 per cent from our e-mail alert and the other 90 per cent. SNVP could do even better.

You can take advantage and earn a small fortune in profits.

DISCLOSURE: This is an ad. We were paid to get this message to you. We only take on projects that are willing to pay us. We never tell people to sell. The info here is based on what the Company told us. This is a risky business. We don't hold any licences and have not received approvals from anyone. Do not get this or any other pick unless you are able to handle a complete loss. We were paid 20k cash from DTM Groupo, Inc. If you decide to buy, it's your decision and you are on your own. We want you to know that while our ad says 'buy' we are selling, so you can factor that into your decision and we don't get in trouble.

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