Self Help

The “Short-and-abort” tactic towards stocks works on the same premise as the “pump-and-dump.” The difference is that instead of playing on greed emotion, the con works on the fear emotion. To understand this scam, you should keep in mind that one can profit even when a stock falls in price by “going short.”

Going short is a strategy that an investor can utilize in a margin account with just about any broker. An investor may consider going short on a stock if he expects the stock’s price to fall. Say that you think the stock of the company Blah Blah Inc. (at $50 per share) will sink fast. When you tell the broker that you want to go short on 100 shares of Blah Blah Inc., the broker will borrow 100 shares from the market, sell those shares, and credit $5,000 to your account (100 shares at $50 per share). Because this transaction is based on “borrowed stock,” sooner or later you’ll have to return the stock. Say that the stock price falls to $30; you could then instruct your broker to “close out the position.” This directive means that the broker will debit your account for $3,000 (to buy 100 shares at $30 and return the stock to the source). In this case, you would make a $2,000 profit (the original $5,000 less the $3,000).

In the case of short-and-abort, the scammers want to make money from a stock’s plummeting price. They may contact shareholders directly or plant phony stories or press releases in the media to cause concern and panic over a company’s prospects. Naturally, shareholders in that particular company get anxious over their investment and decide to sell. The sudden, mass selling causes the stock’s price to fall. The scammer then closes out the short position, takes the money, and runs.