If you have an e-mail address, you've likely received stock spam, those curiously worded messages urging you to "Get In Now!" on shares of some company that's drilling for oil at the South Pole or building an SUV out of plywood. While junk email is nothing new — it's estimated that unsolicited sales pitches make up 80 per cent of the 1.6 billion e-mail messages sent weekly — in the past couple of years, inboxes have become increasingly jammed with spam designed to tout stocks.

So who's sending it? Why? And how do we get them to stop?

The "why" is easy — it's very lucrative for the spammers. First, they buy up a large number of shares in a publicly traded company. Highly risky issues called microcaps are normally chosen because the shares are priced low, so a rise of a few cents can mean a major percentage gain.

Once shares have been accumulated, an e-mail blast promoting the company is sent out to millions of people, in the hopes that enough recipients will buy in to drive up the stock price. At that point, the spammers unload their shares at a profit.

While the technology for spreading the message is new, the scam is not. "Pump and dump" schemes have been around as long as stock markets themselves, from fake newsletters to boiler room phone calls. E-mail is just the latest version of an old con. However, it's an efficient — and equally illegal — variation that allows scammers to reach millions of people easily and cheaply.

Who are the marks?

Who's foolish enough to take the advice of an e-mail reading "Wild Brush Energy are very stable working company. Charts are proving this words"?

Lots of people, apparently.

A study by researchers at Purdue University in Indiana and Oxford University in England found that enough recipients are acting on spam e-mails to consistently put the spammers in the black.

The study, released in December 2006, noted a significant increase in both price and volume of shares traded for spammed stocks, from the day before touting begins until the day of the most active spamming.

Laura Frieder, co-author of the study Spam Works: Evidence from Stock Touts and Corresponding Market Activity, explained who, besides the spammers themselves, is doing the trading.

"Firstly, there are naive investors who are greedy and maybe not so smart — similar to the people who send thousands of dollars to Nigeria or pass on chain letters," said Frieder.

"If they attach even a very small probability of success to the idea that they can make money, they figure it's worth a try."

Secondly, she said, there are people who know that the information is worthless, but figure that if other people don't know that, there might be a chance to make a buck.

"If I think that other people are going to buy and push up the price, I might buy if I think I can get in early enough, reap a little bit of that gain, and get out."

While the spammers profit by buying in early, it's almost impossible for the average investor to make money by speculating on spammed stocks. A key finding in the Purdue report was that spammed stocks generally experience a dramatic drop in price after the touting ends.

Another study of spammed stocks by German researchers, The Effect of Stock Spam on Financial Markets, arrived at similar conclusions.

"Shortly after the spam mail, the stock typically loses most of its value in just a couple of weeks or months," said Thorsten Holz, co-author of that report.

Pointing the finger

Determining the identity of the spammers is the first step to stopping them.

"In the beginning, there was some reason to believe that the spam was sent by the [touted] companies themselves, but the spam you see now is overwhelmingly being sent out by people who've bought a bunch of shares in the company, and are pushing it," said John (not his real name), who operates the spam-tracking website spamnation.info.

Thanks to the global nature of the web, those people could be operating anywhere. But because the stocks being pitched are virtually always traded on the microcap Pink Sheets exchange, it's generally the U.S. Securities and Exchange Commission that is called upon to track them down.

"They're young, they're old, they're men, they're women," John Stark, the chief of the Office of Internet Enforcement at the SEC, said of spammers. "And as far as where they're located, the truth is it can be done anywhere on the planet."

It's possible to trace spammers through their internet footprints, but Joe Stewart, a security expert with the Atlanta-based information security firm SecureWorks, admits this method isn't likely to solve the problem.

"Finding out who they are is not incredibly difficult, but there are a lot of them and too few enforcement agents," he said.

"The likelihood that any of these guys are going to get caught this way in the next year is maybe one out of 20."

Can filters do the job?

Another technological method for beating stock spam is through beefing up spam filters to keep out the touts.

"In terms of filtering, it's never going to be a technical solution," Stewart said. "There are temporary measures, and then the stock spammers are there with a countermeasure. As long as they're making money from this, and there's some incentive to continue, they'll find a way to get that spam through."

A more promising mechanism for winning the stock spam war is through tracking the trading of spammed stocks.

"With the click of a button and a few simple steps, I can find out every single entity or person who traded and made a profit on any U.S. stock," said Stark of the SEC.

"I've never investigated a spam campaign where someone wasn't in it to make a profit, and that's how we track them. That's how we've brought a lot of cases against some really notorious spammers."

Investors urged to 'wise up'

In the end, though, most experts agree that stock spam isn't going to go away any time soon.

"There's always going to be spam: it's just too easy to easy to send out twenty million e-mails," Stark said. "However, you can certainly put a dent in their efficacy through basic law enforcement and public education."

John at spamnation.info agreed that the best hope for defeating the spammers is through education.

"Investors are getting a little smarter … just because some random stranger sends you a funny-looking picture which says that this stock is going to explode is not necessarily a reason to buy it. If investors en masse wise up, stock spam will die a natural death."

And Purdue University's Frieder offered blunt advice for would-be spam speculators.

"Don't fall for this blatant nonsense because you're probably not going to do very well."

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