Spam and Stock Fraud

Today, Joanne Allen of Reuters is reporting the indictment of a man from Michigan for engaging in a stock fraud scheme in which obscure penny stocks were promoted through spam. Alan Ralsky is being described as the "spam king" and the mastermind behind the operation which involved ten others.

The way it worked was that the group would find an obscure stock trading at a really low price and make a large purchase. Then, they would send out spam mail to millions announcing the stock was about to rise. This was essentially a self-fulling prophecy because as people acted on this "tip" it did drive the stock price up. When that happened, Ralsky's group promptly dumped the stock to reap a nice profit. Since the rise was artificial the stock would soon fall back to its earlier level leaving lots of investors with a loss.

I, myself, had received any number of these stock promotions. I even tracked a few of the stocks to see what would happen. Usually, there was a bubble as the stock rose and then fell. My own observation was that it nearly always started the decline before reaching the level the e-mails suggested it would attain. That must have been when the stock was being dumped. I was never taken in by these schemers because I recognized it for the stock manipulation ploy that it was. However, many were seduced, and those who did not get out at the right time lost.

The indictment charges that Ralsky's group used illegal means to trick the recipients into opening the e-mails and to get past the spam filters. Though the techniques were not named in the report, typically those who knowingly operate illegally are using offshore mail servers and phony e-mail addresses which are difficult to trace. Unfortunately, the strategies I suggest for controlling your unwanted e-mail will not work with those who operate in violation of the laws. It is sad, but true, that in the spam wars, the heaviest casualties are suffered by the recipients and the legitimate bulk e-mailers. The worst offenders actually suffer the least.

Joanne Allen said in her report that the Detroit News indicated Ralsky was believed to be in Europe at the moment. To me that comes as little surprise. Although, there are some island nations that would have surprised me even less.

It should be noted that, as of this posting, Alan Ralsky and the others have yet to be tried on these charges. Legally, they are still considered innocent until such time as they may be convicted. We must wait to see what facts emerge at trial.

That's Wade's two cents.

Wade Houston
January 4, 2008