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On this site, I often see posts that mention a type scam where a con artist sells an investment newsletter containing a particular advice to a group of people, while selling the exact opposite advice to a second group of people.

  • What is the name for this kind of scam?
  • How does it work exactly?
  • Wouldn't the scam fall apart if the victims from different groups manage to meet each other and realize that they have been given different advice?
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  • How is this a scam? There might be perfectly legitimate reasons for giving different advice to different groups, e.g. people in their 20s vs those over 65. – jamesqf Nov 9 '20 at 16:35
  • @jamesqf Notice that the question assumes that this is done by a con artist. – Flux Nov 9 '20 at 16:37
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    @Nayuki Yes, I eventually read the article and discovered the term "Baltimore Stockbroker" (which I mentioned in a comment in Bob's answer). However, that name originated in a chapter of one book: How Not to Be Wrong by Jordan Ellenberg. Different writers call it by different names. – Flux Nov 23 '20 at 6:40
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The root of such a scam is to provide investment recommendations for the purpose of eventually selling an expensive newsletter or service.

For example, suppose the perp sends a recommendation to 8,000 people. Half are told to buy and half are told to sell. After it plays out, the process is repeated with the 4,000 people who got the correct advice. And then once again with 2,000.

When done, 1,000 people have received 3 out of 3 correct picks and they are pitched an expensive tout recommendation service for say $995. If only 20 sign up, that's nearly $20g. 50 is $50k.

Before the popularity of the internet, the odds of any of the 8,000 people meeting each other was infinitesimal, especially if 160 people in each US state received the tout. I'd guess that the odds are higher in the internet era but still fairly low.

And even if people came across one another, the odds of getting caught are modest because these are pop up events. Perps don't use their actual home or business addresses. A PO Box is likely and the entire scam is transient. Do it, hopefully receive some checks and like many scams, they move on to the next PO Box.

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  • Are the initial recommendations usually free? – Flux Nov 9 '20 at 3:28
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    Is there a name for this kind of scam? – Flux Nov 9 '20 at 7:42
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    Yes, the initial recommendations are free in order to incentivize the victims to purchase the expensive advisory service. It has been around for so long - I remember when the solicitation was done with postcards :->). I don't know if there's a specific name for such a scam but it would certainly fall under the SEC's prohibition against promoting bogus investment schemes. – Bob Baerker Nov 9 '20 at 10:24
  • The initial recommendations are free and worthless. I send “buy xyz” to half the people and “sell xyz” to the other half. I have no idea whether you should buy or sell, just that half of the people will get advice that looked good. – gnasher729 Nov 9 '20 at 11:00
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    How Not to Be Wrong by Jordan Ellenberg calls this the "Baltimore Stockbroker scam". In sports betting, this is apparently called "double-siding". – Flux Nov 13 '20 at 9:33
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It is called an A/B Test lol.

This is not a scam just a rip off.

Unless they forgot to write the disclaimer "not investment advice, consult your financial advisor", then its a scam.

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  • The scammer in this hypothetical scenario is deliberately presenting his recommendation as advice, so obviously he's not going to put a disclaimer like the one you suggest. – Steve-O Nov 9 '20 at 15:58

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