Scottish Daily Mail

INVESTMENT CLINIC

- By Holly Black

I REGULARLY trade stocks and shares. I recently received an email with an investment report recommendi­ng I buy shares in a small company whose shares only cost a few pennies. Shall I take a punt?

K. P., Hastings UNlESS you know the firm that sent you this report, I would exercise extreme caution before buying the shares of any company it recommends.

While there are various stock brokers and analysts which do send out reports recommendi­ng shares to buy and sell, you have to sign up to receive these. As with any other junk mail, if you did not subscribe then it is best ignored and deleted.

It is very likely the recommenda­tion could be an investment scam known as a ‘pump and dump’ scheme.

This is when fraudsters will buy up a load of cheap company shares.

They then obtain contact details of many investors and email them with reports such as these.

The hope of the fraudster is that investors are t e mpted to buy t he s hares recommende­d, which then causes the price to rise significan­tly.

The fraudster, who already holds the shares, waits for the price to go up and then sells his holdings, enjoying the profits.

But this causes the price to fall again and the victims are left out of pocket with shares, often in failing businesses, which are difficult to sell.

Frequently, t he scam will i nvolve recommendi­ng very cheap shares, such as the ones you mention, which only cost a few pennies. This is because you are more likely to take a bet on something if it doesn’t cost you too much, whereas you might baulk at an unsolicite­d email which asks you to part with thousands of pounds. It’s a clever scam along the lines of that featured in the film Wolf Of Wall Street, because it’s so cheap for the fraudsters to carry out. They don’t need to take your money from you directly or, in this case, even cold call you.

Once they have your email address, all they need to do is send out a legitimate­looking report and hope enough people are tempted to invest. Because of that, it’s also very difficult to prove who was responsibl­e for any subsequent rise or fall in the share price.

While this isn’t a widespread scam in the UK just yet, it is thought to be on the increase in the U.S. and therefore likely to affect more and more people in this country in the future.

The best advice is to not even read any unsolicite­d reports or emails that are sent to you, and to always do a lot of research before you make any investment.

If you have an investment question, get in touch at Investment Clinic, Money Mail, 20 Waterloo Street, Glasgow G2 6DB or email h.black@dailymail.co.uk

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