The Ontario Securities Commission is warning investors of a two-stage stock scam involving worthless stock, "swaps" and salespeople claiming to represent legitimate companies. The OSC has received complaints concerning this scam from Ontario investors, as well as residents of the England, New Zealand and Australia. There are two stages to this harmful scam:

Stage One: The Pump and Dump

In a typical "pump and dump" scheme, an investor is approached by a brokerage house salesperson, and offered an incredible deal on a stock described as a once-in-a-lifetime investment. The stock is likely to be US-based over-the-counter smaller company stock worth fractions of a cent.

The brokerage house, while holding a large block of the stock, actively promotes the stock so that the price is driven significantly upward. Once a sufficient number of investors have overpaid for the stock, the brokerage house ceases to support the market for the stock and the value of the stock falls dramatically, usually to less than one cent per share. The "brokerage house" promptly closes up shop, and the victim is left holding worthless stock for which there is apparently no demand.

Stage Two: The Stock Swap

Still holding worthless stock, the investor is approached by someone posing as a sales representative of a legitimate-sounding company.

The sales representative tells the victim that he represents a group of clients trying to acquire stocks that have recently declined, in order to receive tax cuts. The sales representative proposes that the victim swap the worthless stock for recognised blue chip stock held by the tax-burdened clients. For the purposes of the swap the victim's stocks are valued at the price(s) that the victim paid.

Since the blue chip stock is priced higher than the value of the victim's stock, the victim must pay the difference in the value of the stocks, or other fees supposedly associated with the transaction, before the switch is made. In one case, a victim submitted US $12,250.00 to a New York branch of the international bank where the suspect held an account. The victim did not actually receive the blue chip stock, but instead was swindled a second time.

If you are approached to invest in this type of scam, or have information pertaining to this or a similar scam, contact the Ontario Securities Commission at 1-877-785-1555.