It is hard to imagine one’s 68 year old grandmother committing fraud. But, that is the case for Caroline Meyers of Calgary, Alberta, Canada. According to the Calgary Sun, “Taking part in a dump-and-pump investment scheme has landed a Calgary grandmother the first time behind bars for such a Securities Act breach in Alberta.”
Meyers and her partners perpetrated a dump-and-pump stock scheme, “in which investors were conned into purchasing shares in Calgary-based Coastal Pacific Mining Corp., which was quoted for trading on the over-the-counter markets in the United States.”
“Their scheme involved creating a shell company and using friends as investors, to make it appear to be a viable entity. They then issued a series of press releases on company activities leading other investors to buy shares on the OTC market which involves smaller companies unable to meet stock exchange listing requirements. In the case of Coastal Pacific, once the company was pumped up by false and misleading releases thousands of investors purchased shares, which traded as high as 50 cents each.”
Schemes like this succeed because of blindspots in the victims. A dump-and-pump stock scheme creates a buying frenzy and relies on trusted friends spreading the word. When we allow our emotions to take control of our thinking process, we experience blindspots. Our ability to think rationally gives way to the intense emotions generated by the possibility of a financial windfall. Couple that with our trust in the friend who just made the frantic call to let you in on a hot tip, and you have a recipe for disaster.
With so much excitement about the stock and our high level of trust in our friend, we make the purchase. “Afterall”, we think, “Bill is a completely trustworthy friend. Surely he has investigated the stock and found it to be a sound investment.” Sadly, because we did not investigate for ourselves, we really have no one to blame except ourselves.
Remember, when emotions are involved in our decision-making processes, we should take note and proceed cautiously. Trusting our friends is healthy. But, it is okay to validate their research. Let this be your motto: trust but verify.
The next time your emotions are running high and you are about to make an investment decision with a trusted friend, be careful! You may have just entered… The BlindSpot Zone!