NASD Warns Investors About 'China' Stock Scam

Securities regulators are warning investors to be wary of faxes, e-mails and text messages sent by cellphone that promise huge profit from "China" stocks of companies that are often unrelated to the country or its stock markets.

The NASD, the brokerage industry's self-policing organization, issued an investor alert yesterday regarding "pump and dump" scams touting bogus stocks with promises of large returns. Faxes carry headlines such as "Grabbing massive profits in China has never been easier than right now!" the NASD said.

The word "China" in a company's name can be misleading, and most of the companies being promoted are not incorporated in that country, according to the organization.

"The best way to avoid being taken in by a scam is to ignore these unsolicited stock recommendations or, at the very least, investigate the company and its claims before investing," NASD Chairman Mary L. Schapiro said in a statement.

The organization said the hyping of phony "China" stocks is the latest variation on the classic "pump and dump" stock scheme, in which the perpetrators get people to buy stocks to inflate their prices and then sell their blocks of shares at a profit. Ordinary investors can lose out when the prices tank on the subsequent dumping of stock.

The NASD also urged investors to report the scams by forwarding the spam e-mails to spamnasd.com.