There is a lot of fast money to be made investing in junior mining companies, but those wins can slide into losses just as fast if the stock is a pump and dump scheme. Before investing in any company, thorough research and due diligence should be conducted to protect your portfolio. Start with a thorough screening of management, media coverage, articles, reports, and any red flags. Here are five things you can use to spot a potential mining stock pump and dump:

1. Founders, executives, and other insiders are selling and gradually liquidating their positions. 

This is the most important thing to watch for. The behavior of the people who have inside information and follow the company closely is highly indicative of whether the company is a scammy promotion or a company that is going to realize substantial value. You can check this by searching their names on the SEDI website and seeing whether they are accumulating or selling shares. The worst sign is if founders or people with very cheap stock are unloading it into uptrends in the stock.

2. Media and coverage of the company are all paid. 

Companies like Agoracom and newsletter writers will take a large position in the company with cheap stock and also be paid cash to write anything that promotes the company. Their opinion is usually highly biased because they just want the value of their cheap stock to go up a little bit and they don’t care about the long-term value of the company. 

3. Articles about the company have the ticker bolded. 

Some legitimate stories about stocks that will actually go up in value may also use this promotional technique, but it is generally a pretty dodgy signal. The purpose is to remind retail brokers and other bag holders to go to Robinhood or E-Trade, enter in that ticker, and buy it without doing any research. They show the ticker and repeat it a bunch of times to make it obvious and plant it in your mind, hoping you won’t do any more research.

4. Googling the founders, major shareholders, directors or CEO turns up scam reports.

Thanks to the internet, when you Google someone and their name, plus ‘scam’ or their name plus ‘fraud’, you can find other people who have been ripped off by them in the past. While not guaranteed, past habits may be useful information for predicting their future behavior. Most of the scammy promoters basically lather, rinse, and repeat with that technique over and over as a way of generating profits. You should look for any investors in the past who have been left holding the bag and lost their whole investment when the scammer dumped their stock. They will likely be complaining on boards, social media, and other websites.

5. The company is all talk.

Companies love to talk about their big plans and how far they’re going to go. If they don’t have evidence to back it up or a concrete timeline for their projects and plans, this is a serious red flag. No timeline means no accountability (for their work, or their shareholders). If the company story is all about their ambitions and dreams, but not how the potential of their exploration efforts or plans will be unlocked, it might be wise to steer clear. Letters of intent as well as boots on the ground and steady progress for ongoing projects should be presented and explained clearly. 

Pump and dump schemes are nothing new, and while the scam methods and deception strategies continue to evolve with technology, a fraud will always be a fraud. The scam artists starting and marketing these companies often have patterns to their behaviour and language. Keeping a keen eye out for some of the red flags that have your intuition sounding the alarm can save you a lot of headaches and money. 

While not a rulebook, these red flags should make you slow down and take a second or third look. If the stock is a pump and dump scheme, you don’t want to be holding the bag when everyone else has dumped their holdings.

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