Hang Up on This Stock Tip

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Last Friday, the Securities and Exchange Commission (the SEC to you and me) announced a warning against an investment scam that has caught several hundred people already. It masquerades as a "wrong number" message left on the listener's voice mail or, for those of us who are less tech-savvy, answering machine.

A voice leaves a message for some "friend," thinking they have reached their friend's new number. The message contains a stock tip for a thinly traded company. Supposedly another of the caller's friends has some exciting information about this small company, and the caller is letting her friend know ahead of time. A bit of realism is often included as you can hear the caller bite into some food accompanied by a brief apology about being hungry.

I know what you are thinking after listening to the voice mail. "This is a hot stock tip! Finally a wrong number call I can use. At last I can get in on the action! Their loss, my gain! I'll be a chump if I don't get in! Hurry, hurry! Now where did I write down my broker's number?"

Hold on a minute, there, partner. Slow down, stop, and think for just a moment.

Have you ever heard of this company before? Likely you have not. However, considering there are more than 4,000 publicly traded companies on the market, that might not be too surprising. But how big are they? What do they do? And, most importantly, are they small enough to have their stock price manipulated by scam artists?

Because that is exactly what the caller is trying to do. By hyping a stock to get lots of people buying into it, the price is driven upwards (that old supply and demand thing). Then the people running the scam sell their shares and stop the hype, and the stock price plummets. And you, who were so lucky to have received this hot tip, are left holding the bag. Who's the chump now?

So what should you do if you receive one of these conveniently misdialed messages? Let the SEC know, with details about which company, the time of the call, and the number of the phone calling you, if available.

But, most importantly, don't buy the stock based on some tip alone. That would be most un-Foolish.

Have you heard of other scams? How can they be recognized and avoided? Join our Financial Scams discussion board.

Since no companies were mentioned by name, we cannot tell you whether Jim Mueller owns any of them or not. But we are allowed to say that he likes to receive emails in response to his articles as long as they are not stock tips.