Investors Beware #1: Stock Tips and Recommendations Fraud - Indian IPO Blog

Sunday, June 25, 2017

Investors Beware #1: Stock Tips and Recommendations Fraud

This is one of the widely used and most common scams in Indian stock market. Here, the fraudsters try to attract the traders/investors by convincing them that they can provide a profit as much as 3-10% per day and 30-40% per month. Please note that Warren Buffet, the legendary investor, has got an yearly return of around 22% to become one of the richest person in world. And these people are promising such high returns monthly. They further assure the people to give over 90% accuracy on their tips and recommendations.

These fraudsters argue that they have given minimum 40% return to their old clients. When people ask for trial tips before subscribing to their tips and recommendation program, they easily agree. {Although, most of the good companies clearly deny tips without complete registration}.

Many people who try these trials, become victims of these fraudsters. All the tips provided by them during the trial period are 100% accurate. Seeing the results of the trial period, the traders/investors subscribe to the monthly/yearly recommendation plan of these fraudsters. They pay high fee to subscribe for these tips. However, after the registration none of their tips works good.

Now, let us see how these fraudsters are able to provide 100% accurate recommendations during the trial period.

Suppose, these fraudsters agree to give trial period for 3 trading day. That is, they agree to give 1 recommendation to buy or sell a stock for three trading day. But there is a hidden side to this scheme that the investors do not know. During these three days, they don’t send the tips to just 1 person. They generally send the tips to thousands of people.

Let us say, they started with 1000 people initially to send the tips.

Day1: On day 1, these fraudsters send messages to sell a stock to 500 people and to buy to other 500 people for the same stock. Obviously, either the stock will go up or go down (they generally choose a volatile stock so that the probability of stock not changing price is zero). Therefore, on day 1, they have send a successful tip to 500 people. They, discard the other 500 people for whom the tip didn’t worked.

Day2: On day two, they again send message to sell the stock for 250 people and buy the stock for other 250 people. Obviously, again one group will receive correct recommendation. They again discard the other group whom they sent wrong tip.

Day3: On last day of tip, they send buy suggestion to 125 people and sell suggestion to other group of 125 people. Hence, 125 people will receive a correct tip for three consecutive days.
Now, these 125 people will now think that all the recommendations provided by these fraudsters for three continuous days are correct. Therefore, many of the people from this group will subscribe to the tips and recommendation plan and become a victim of one of the most common scams in Indian stock market. Let us assume that the charge for sending tips is Rs 15,000 for a year. If even 100 people are trapped in this swindle, these fraudsters easily make around 15,000*100 = Rs 15 lakhs.

Soon after subscribing to the tips from these fraudsters, the investors/traders start losing money. The tips aren’t working anymore. Overall, these people lose they money apart from paying a heavy registration fee for taking tips and recommendations

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