The following article was taken from another board and was written by Guapo (someone that i highly respect and who has taught many much about the market.) A couple of paragraphs that were directed to another investor were edited by me.

--------------------------------------------------------------------------------

Company Pump & Dumps And Red Flags by Guapo

This is a post about company pump and dumps, those conducted by companies, selling their own stock. It does not discuss pumps and dumps conducted by organizations or groups of individuals (Group Plays) outside or not associated with a company.


Part 1 of 4 Parts

As with all companies, not just the pennies, investors have to watch and see if the company produces. Pumps and dumps continually promise everybody everything except the moon, and they would promise that too if they could get away with it. However pumps and dumps rarely deliver on their grandiose promises of the future.

If a penny company wants to establish rapport and trust with the investing public, it must prove itself to be legitimate by demonstrating verifiable progress and results in its business.

How do I determine if a company is a pump and dump? I look for red flags. If I see five or more red flags on a company, I will then assume it’s a pump and dump. What do I consider red flags? Here's a list.


1. Grandiose predictions in PR~s that simply do not seem plausible

CMKM (stock symbol CMKX) was a good example in 2004 or early 2005. Out of the blue they announced they had a gold mine in South America and would start shipping the ore by boat to the U.S. for processing. Knowing what it cost to ship anything these days, it seemed prohibitively expensive. It did not appear logical to me. As it turned out, CMKM never shipped a pound of ore to the U.S., nor did they ever recover a single gram of gold. Their stock was deregistered last year and the company went out of business.


2. Fluff or fluffy PR~s that have nothing of substance in them

Such PR~s are simply hot air and nothing more, designed only to keep the company’s stock in the foreground. Announcements of Joe Blow joining the board of directors, or Peter Piper promoted to the position of chief engineer are worthless. Proclamations congratulating other companies or organizations for their achievements or accomplishments are meaningless.


3. PR~s containing weasel talk

Weasel talk is language that appears to say something concrete but doesn’t really. Weasel talk is highly prevalent in PR~s.

For example, a company issues a PR with this phrase in it, “The board of directors today announced it has approved a stock buy-back plan of 700 million shares.”

It sounds dandy, doesn’t it? When that PR hits the street, the PPS will probably zoom, at least move up some anyway. However, the PR does NOT say the company will actually buy-back 700 million shares. The board only approved the buy-back. The company is under no legal obligation to buy-back shares.

Suppose another company issues this PR, “The company feels a stock buy-back is in its and the stockholders’ best interests. Therefore we will buy back up to 500 million shares to reduce the float.” Note the words up to in the phrase. That means if they buy back ten shares, they have satisfied the requirement.

Some folks have argued strenuously with me on this point, claiming companies can not say such things in PR~s and get away with it. “It’s illegal,” they say. Unfortunately it is not. The companies are operating well within the law.