Podcast 260 - ANALYSIS OF A PUMP AND DUMP INVESTMENT SCHEME

Welcome to Safe Dividend Investing’s Podcast # 259 on January 24th of 2026. 

My name is Ian Duncan MacDonald, and I am an author of 7 investment books. My seventh investment book, Achieving Financial Independence Safely - 200 NYSE Stocks Analyzed and Scored" became available January 3rd on Amazon. You can easily find it by searching in Amazon or Google for "Ian Duncan MacDonald books". I will maintain the introductory price for this new book until all the previous buyers of my book have been informed of its release.

The latest hyper promotion of Artificial Intelligence penny stocks as the next Microsoft or Nvidia reminds me of the pump and dump strategy of stock promoters pushing gold stocks that I encountered decades ago, early in my career. Today, almost the same language is being used however they are now aided by the  internet and other computerized aids.

In this podcast I analyze an actual penny stock and explain what to look for to avoid getting caught up in a pump and dump scheme in which you could lose all your money. It is astounding how much these investment schemes can make for the stock promoters at the expense of investors. No one puts a gun to the head of those purchasing these stocks. They are blinded by what they think is a "sure thing", despite the fact that they have done not even the basic research on the stock.

 My books are not get-rich-quick books. They are about showing people just like you how to  select, from the thousands of stocks available, those that are financially strong with long histories of paying ever rising high dividends with ever increasing share  prices.  My objective is to give  investors the confidence  to consider building safe stock portfolios as self-directed investors. Once your  financial independence is realized, you will, like me, enjoy a generous, reliable, income for the rest of your lives. 

Please, visit my website www.informus.ca if you wish to learn more about me and my writing.

Ian Duncan MacDonald
Author and Commercial Risk Consultant,
President of Informus Inc
2 Vista Humber Drive
Toronto, Ontario
Canada, M9P 3R7
Toronto Telephone - 416-245-4994
New York Telephone - 929-800-2397
imacd@informus.ca

Transcript

Podcast 260

Safe Dividend Investing

31 January 2026

Greetings to investors all around the world. Welcome to Safe Dividend Investing’s Podcast # 260, on January 31st of 2026. My name is Ian Duncan MacDonald, and I am an author of seven investment books. My latest investment book “Achieving Financial Independence Safely – 200 NYSE exchange Stocks Analyzed and Scored” became available for delivery from Amazon on January 3 of 2026. 

I am delaying increasing this book’s price until I finish contacting all the buyers of my previous investment books. I want to give them an opportunity to purchase the new book at its current discounted launch price. 

If interested, you can find more information about the new book along with my other books by going to my website www.informus.ca. The other alternative is to do a search in Amazon or Google for "Ian DuncanMacDonald books”.

My interest in the investment industry began in my early twenties, when working as a sale representative with Dun’s Marketing Services. They provided sales and advertising information to sales and advertising managers.

 Duns had built a computerized database of about 20 million American and Canadian businesses. The data for each business included the company name, the name and title of the chief executive, the company addresses, phone number, several size factors such as sales volume and employee size. The company’s line of business was one of the most important factors for identifying prospective customers. The information was delivered in a choice of formats such as mailing labels, file cards and computer tape

I quickly realized that stock promoters loved the product. They would buy thousands of the data cards and distribute them to dozens of hungry commissioned telephone salesmen. Sitting in their cubicles they would phone and attempt to sell shares to the chief executives listed on the cards. These boiler rooms operations often sold shares in speculative mining companies to these high-income executives and owners of businesses.

Listening to their spiel it was the typical high pressure, get-rich-quick now while the stock is available for pennies because those shares will be worth a hundred or even a thousand times more than what they are now being traded at. You would think that the chief executives of companies would recognize they were being hustled but these stock promoters sold millions of these speculative mining stock shares in what they derogatorily called “moose pasture mines”. 

These boiler rooms pride themselves on being able to pump up the share price from perhaps 5-cents a share up to $5.00 a share. When the stock had reached what they thought was as high as it would go or their greed allowed, they would sell any shares they owned and move on to promote another stock. Those investors who had bought the shares at $5 and were not part of the pump and dump scheme would see their share value drop down to a few cents. They would lose the thousands of dollars they had invested. 

The stock promoters could make hundreds of thousands of dollars because they understood the game being played. Not surprisingly some of these promoters owned mansions in the most expensive areas in the city.

Here it is, decades later, and there are still many investors out there attracted to highly speculative stocks. The following excerpt from an investment newsletter brought back memories for me. It is bait, written to suck in those naïve investors who must still believe in Santa Clause. They must not be doing even basic research before buying a stock. 

The stock promoter who wrote the following uses all the latest hot stock, data triggers, the big numbers and the jargon to get the attention of a speculative investor. I saw this article appearing in at least seven investment newsletters. I suspect that the newsletters are being paid to publish it. The article immediately grabs your attention:

“The Numbers speak for themselves. The AI market is set to rocket from $371 billion in 2025 to over $2.407 billion by 2032. At the same time, global SaaS is projected to surge from $315 billion in 2025 to more than $1.1 trillion by 2032. Now picture a company sitting right at the intersection of both, with fintech layered on top. That is the setup investors dream about. 

In the industrial age, oil was the resource that powered everything. In the digital age, it’s transactions. AI doesn’t just generate data, it creates commerce, billions of payments, subscriptions, and micro-transfers flowing nonstop across 120+ currencies. Every AI download, every SaaS subscription, every automated workflow triggers money in motion.

 Without platforms that can move, secure, and optimize these flows, the system will buckle. The companies that own these pipelines (as well as their earliest investors) will own the profits.

The catch is that Wall Street has already feasted on the first AI winners. Nvidia cornered the chip market, Microsoft owned the cloud, and Amazon dominated the data centers. Their massive upside is already realized. The real money now lies in spotting the next indispensable infrastructure play.

(This is where I now substituted Blah Blah for the name of the stock being promoted).

 It’s a small-cap innovator solving what banks and legacy processors cannot: fragmented onboarding, fraud prevention, compliance, and multi-currency payments.

Once a company switches to Blah Blah, it sticks by them. Add white-label partnerships on top, and adoption can spread across industries faster than you can blink. Early investors continue to enjoy lower entry costs, benefiting from compounding growth as adoption accelerates.

With an early growth similar to Nvidia, you don’t want to miss out on Blah Blah before the biggest gains will have already passed.”

I am not out to disparage the company being promoted. It is just one of many stocks being promoted this way.  I am just using this actual example to stress that you must do basic due diligence research to protect your investment dollars. When you encounter a promotion like this, your credibility warning light should light up and make you thoroughly research the company whose shares are being promoted.

The first clue that makes you look more closely at such a stock and see on which stock market it is listed. It costs many hundreds of thousands of dollars each year to maintain a stock listing on the New York Stock Exchange. As the biggest strongest stock market in the world, most of the world’s largest companies are listed there. The NASDAQ and the Toronto Stock Exchange are also well respected and attract listings from large strong companies.

Many smaller, recently formed companies like Blah-Blah are listed on smaller stock exchanges like the Canadian Securities Exchange. Blah Blah would have been required to pay a $5,000 to $20,000 application fee, plus a monthly maintenance fee of a few hundred dollars. 

Interestingly the listing Blah-Blah in my stock research page directed you to review information on Blah Blan on the “OTC pink”. The OTC pink or Pink Open Market is a speculative marketplace for trading stocks not listed on major exchanges. It supports over-the-counter trading, involving direct transactions between parties instead of through a centralized exchange. There are few disclosure requirements on the OTC Pink. As result, these trades are often regarded as being high risk. They could be companies in financial distress, foreign entities, or newly formed companies.

Recognizing that some risk may be present it is a good time to gather the usual information to calculate an IDM stock score for Blah Blah. The software to calculate this score is supplied free to those who buy my investment books. The scoring process revealed the following:

(1)   The share price was $2.79 for a sub score of 3 out of 10

(2)   Not listed four years ago so the historical sub score was 1 out of 10

(3)   The book value was zero thus sub score was 1 out of 10

(4)   No analysts gave it a buy recommendation – sub score 0 out of 5

(5)   No strong buy recommendations gave it a sub score 0 out of 5

(6)   It paid no dividend, so the sub score was 0 out of 10

(7)   Operating margin was - 5,858.17% for a sub score of 0 out of 10

(8)   , Volume of shares traded 1,856,298 for a sub score of 9 out of 10

(9)   Price to Earnings ratio was 0 for a sub score of 0 out of 10

When all the sub scores were added this stock’s grand score was 14. 

I personally avoid buying stocks whose grand score is under 50. Few stocks score over 70. 

The high volume of shares traded seems to be an indication of how strongly the stock is being promoted.

This is a stock that was first listed in December of 2023 at 65 cents. By August 20 of 2024 it had risen to $1.10 at which point the company did a 10-way split which brought the price of a share down to 5 cents. The stock then climbed to a high of $5.75 by July of 2025 only to fall to $5.00 by August. It continued to fall to $3.25 by September, $2.50 by October, $1.35 by November of 2025, by January 14 of 2026 it had risen to $4.20 but on January 28th it was down to $2.79.

Why would they have done a ten-to-one share split in on August 20 or 2024?  Was this a move to enrich the insiders?

 Suppose you were an insider who invested $1,000 in Blah Blah on August 5th when the stock was at $1.00. This would have given you 1,000 shares. Two weeks later, on August 20th, because of the 10 for one stock split the number of shares you would now own in Blah Blah would have increased from 1,000 to 10,000 shares. Each share would now be trading at 5 cents. The total dollar value of the 10,000 shares, for which you had originally bought 1,000 shares for $1,000, would now have a value of only $500. You appear to have lost half your investment. Fear not. Stock promoters are not about to lose money.

Now Blah Blah pushes the sales and marketing staff to pump up the value of the stock. These salespeople tell speculators that this 5 cents stock is going to go, rise to over $5.00. Surely, they tell the speculators that they can risk investing $1,000 dollars if the payoff is going to be $100,000 when the stock climbs from 5 cents a share to $5.00 share.

The share price begins to rise. In less than a year the share price by May of 2025 is 75 cents. The 10,000 shares they bought with their $1,000 is now worth $15,000. This is when they are told to invest thousands more in Blah Blah because it is going much higher. Their greed overcomes their logic. They ignore the reality that this stock is not making a profit and its revenues are only a few thousand dollars. The fear of missing out on the chance to get rich motivates them.

By July 18th of 2025 the stock is now over $4.00 a share. The insiders see that sales of shares are not rising as quickly as they were. It is now time for them to enter the dump phase of their pump and dump investment strategy. They must be careful in selling their shares because they need buyers still willing to acquire the stock at over $5.00 who can be convinced that the stock is going keep on climbing. 

In selling shares, you have to offer them at a price slightly below the price the stocks are now being bought at.

The stock hits a high of $5.75 on July 31st of 2025 and then begins its decline. By August 7th it is $5.00. By October it is down to $1.18. Those who bought it in August have lost 80% of what they invested. They wonder if this is just a normal fluctuation. Will the stock go up again? 

Having pocketed their first profit, the stock promoter now buys it again, this time in November at $1.12 a share. Now, they tell speculators that the share price is going to go back up again. Since it has exceeded $5.00 a share once already, they are sure it will set a new record. It may even go to $10 a share. 

On January 19 of 2026 it reaches $4.47. The promoters are now actively issuing a flood of press releases regarding new partnerships and technology licenses to encourage speculators to keep buying and run up of the share price.

The stock promoters made a killing. They sold out their 2,000 shares at over $5.00 a share and made their profit of $99,000 on a $1,000 investment. Those who invest $10,000 dollars or more in the shares when they were 5 cents a share may have made more than a million dollars.

Why would I not have been interested in the company?

(1)   At the end of 2025 the company reported negative net income and declines in year over year sales growth. 

(2)   The stock is highly volatile, which makes it difficult to buy or sell large amounts without greatly impacting the share price. 

(3)   There have been recent reports of shares being sold by company insiders which could indicate a lack of confidence in the management. The insiders own about 4% of all shares.

(4)   It is offering a service and product in competition with many already established global companies. 

(5)   The chief executive, who is almost 60 years old, has been employed by many smaller companies and does not appear to have had a history of significant business success.

(6)    An analyst reported that in July of 2025 that the company had only $138,000 in cash, total assets of $1.8M and revenue of less than $8,000. The loss for the last quarter was reported to be $244,378 and the cash flow was a negative $245,000. 

The stock is still being sold. Analysts believe that many investors are now acting on 'hot tips about the stock.

 This stock is just one of many that investors who see the stock market as a casino are now investing in. Hopefully these speculators will someday understand the safety and logic of investing in financially strong, well-established companies with decades of ever rising share prices and high-dividend payouts realized from their profits.

All the information gathered that I gathered on Blah-Blah is immediately available and free. Hopefully this podcast has given you some insight into why you must carefully choose the stocks for your self-directed portfolio.

That’s all for this week. In a few days I will be on my way to St Kitts in the Caribbean for two months.  I expect my podcasts will continue during this vacation and that I will not be seduced into laziness by the warmth and sunshine.