---January 6, 2014: Most Pump & Dump campaigns follow pretty much the same "smash and grab" script- a short term surge in volume and possibly share price, artificially created by promotional newsletters and/or social media hype and during which the opportunists dump as much stock as they can, as fast as they can. While many campaigns peter out in a matter of days, some can muster a couple of weeks of interest in shares, especially when the scam is accompanied by wash trades, continued hype and company news releases singularly designed to support the Pump & Dump. Even then, the share price will usually begin to drift shortly after the launch of the campaign, but naive investors, induced by terms such as "bounce play", "short covering" and "healthy pullback", can still be counted on to pick up shares from the perpetrating parties. It doesn't take long for those bag holders whose heads are not buried in the sand to realize that they've been had.
One of the more despicable Pump & Dump styles is one that we've dubbed a "sideways" Pump & Dump. Such campaigns are characterized by their long term promotion, sometimes several months, during which an endless amount of promotional materials from numerous paid sources is disseminated and shares trade in a tight range. These types of schemes are carried out by those who are in less of a hurry to cash in their stock and get out of Dodge, thus perhaps avoiding the gaze of any regulators that might otherwise be concerned about exaggerated price movements. Nonetheless, sideways Pump & Dump campaigns are no less notorious than smash and grab campaigns and can often be more lucrative to their perpetrators, as long term, steady trading may lure more dupes into the scheme.
The benefit to the schemers of keeping the share price in a tight trading range over an extended period of time is twofold: (1) minimal share price discounts are less likely to create panic selling, leaving the divestiture of shares mostly to the dumpers; and, (2) minimal share increases are less likely to make potential investors believe that they have "missed the boat" thus inducing them to get on board.
So how is the share price kept in a tight range during a sideways Pump & Dump campaign? Well, a number of the proverbial moons have to be aligned just right. The share price's upper range can be kept in check by controlled selling, which is increased when buying volume overheats. The lower trading range is established and supported by having the dumpers release the gas pedal on their selling and, if necessary, buy back the shares that they had previously sold at the higher end of the trading range. A lot of money can be made when millions of shares are sold over time, only to be bought back at prices even just a few cents lower, effectively an extended "scalping" scheme. Any shares bought back will then be resold at the higher end of the trading range. One benefit of scalping is that with shares bought back, insiders can claim to have an arms-length relationship to the Pump & Dump and show that they have maintained ownership of the same number of shares throughout the campaign while feigning ignorance.
If trading volume in the stock is waning, wash trades can be used to give the perception of continued interest. A wash trade is an illegal form of stock manipulation in which a trader simultaneously sells and buys shares in order to artificially increase trading volume and perhaps the stock price. No real change in ownership is established through a wash trade, even though the brokerage accounts involved may have pseudo names or entities identified as the owner.
Inevitably, the house of cards will come down, as a dragged-on campaign, with a share price that is going nowhere, will become boring to the public. Interest in the stock wanes and bag holders capitulate, perhaps instigated, but certainly accompanied, by more aggressive insider selling. As the share price disintegrates, the insiders may again buy back all the previously sold stock and skulk in the darkness waiting to repeat the process at some point in the future.
By way of example, let's look at four sideways Pump & Dump campaigns that took place all through the second half of 2013.
Nuvilex, Inc. (NVLX)
On July 12, 2013, NVLX began its fifth Pump & Dump campaign since August 2011- the third one of 2013. On July 26th, shares had already hit their high of the campaign, in spite of the fact that it would continue throughout the remainder of the year. Over the next three weeks, shares traded in a tight range of approximately .15 - .18, after which the range was lowered to approximately .11 - .15. It would not be unfair to say that shares have gone nowhere since the second week of the promotion, back in late July. Over the course of the campaign, at least 129 newsletters promoted the shares of NVLX, many of them twice- a few of them three times. Looking at the chart below, we can see that each peak was met with an exaggerated selloff and that each low point precipitated a spike. Over time, the range gets tighter, until we see the first round of capitulation in December when shares traded into the red. In short, those who held these shares went nowhere, fast. We estimate that at least $4 million was collectively lost by the street on shares of NVLX by the end of 2013.
Plandai Biotechnology, Inc. (PLPL)
PLPL began its 4th Pump & Dump campaign in 18 months on July 23, 2013, continuing almost through mid-December. At least 139 newsletters issued alerts on the stock, many of them twice. The chart shows that shares pretty much traded within the range of the mid .40s to the mid .60s for several months, with a few exaggerated spikes that very briefly took the stock to the low .80s. These spikes were strong selling opportunities for insiders as was evident by the coinciding volume spikes. By mid-September, shares had reached their high for the campaign. On December 16, 2013, the last of the promotional newsletters were delivered to Inboxes and capitulation began immediately after. By the end of the year, PLPL shares were valued at less than half of the price at the launch of the campaign and we estimate that the public collectively lost in excess of $2 million.
Lifeapps Digital Media, Inc. (LFAP)
On July 26, 2013, LFAP became the subject of a Pump & Dump campaign that lasted until November 26, 2013. During the course of the campaign, at least 80 newsletters promoted the stock. Shares immediately spiked from the $.049 launch price and then rarely strayed from a tight trading range of about .07 - .08 until the end of the campaign. The year closed with LFAP shares trading below the Pump & Dump campaign's launch price and an estimated million dollars in street losses as a direct result of the campaign.
IOGA's 4th Pump & Dump campaign of 2013 was a four month affair that began on July 31st. It easily garnered the least amount of attention of the four long term sideways Pump & Dump campaigns of 2013, in spite of the fact that at least 88 newsletters tooted its horn, many of them on more than one occasion. The public's disinterest was immediately evident, as shares went south from the git go and except for two days of recovery during the second week of the campaign, stayed in the red. Sliding continued until the stock found its sideways trading range of .mid .40s to low .50s, at the beginning of September, which it maintained for the remainder of the campaign. Things ended predictably badly, with shares changing hands at the low end of the trading range and have since degraded further. Almost half a million dollars was lost as a result of the promotion. Not surprisingly, the company has not issued a press release since the end of the campaign.