Operation Spamalot: The End of Stock Spam?

The Securities and Exchange Commission (SEC) announced in a press release on March 8 that it has suspended trading in securities of 35 pink sheet companies that have been the subject of recent stock spam campaigns.

Stock spam has increased in volume in recent times and now represents a significant percentage of what we see each day. In 2006 alone we saw more than 300 different stocks being spammed. The nature of this type of spam allows spammers to use images to hide the information on the stock they are promoting without the need for any URLs or filterable content in the body making it harder to detect. The following is a recent example of a stock spam image:

The decision to suspend these securities from being traded is the biggest action ever taken by the SEC against stock-spammed companies and is a result of “Operation Spamalot,” which aims to “protect investors” from losing money to the spammers. It is good to see something being done about this variant of spam but I wonder if this going to work. Is stock spam finished?

A stock spam campaign usually lasts a few days, or, at most, weeks. The examples given in the SEC’s press release were stocks that were being spammed in September, December, and January but the trading suspensions will last for just ten business days from 9:30 a.m. starting the 8 March.

In the past two days we have observed at least 14 different stocks being spammed and only one of which appeared on the SEC’s list of 35. I think the idea has some merit but it will ultimately fail unless the spammed stocks can be suspended on first sight of spamming activity. A 10-day suspension from the first day of a stock spam campaign could ruin the spammers chances of increasing the price of the stock, thus rendering the spam useless. These spammers are obviously interested in making a quick buck, so if you take this ability away then the spammers are likely to stop.

The SEC is also going after the people profiting from stock spam and has recently frozen $3 million belonging to an Eastern European cyberring in an online stock manipulation case. If anything it is good that these high-profile actions will heighten awareness of the risks of investing as a response to spam but you have to spare a thought for legitimate pink sheets companies that get targeted by spammers. How much damage is it doing to them?