Penny Stock Scams

Penny stocks are very inexpensive shares of small companies. However not consider them as cheap. Their per share cost may not be high, but transaction costs tend to be high.

Penny stock scams are executed from the spread of fake information. Fraud revilers, spread false advertising through different ways like email, telephone calls, mass mailing, on internet bulletin boards, chat rooms, penny stock newsletter, reports, radio, television, fax, and press releases. The fake information is usually publicized as “Inside Information”, but it just consisted of lies and mostly paid persons or promoters advertise these news. Small cap stocks normally trade infrequently and have limited ownership. These factors make small cap stocks a choice vehicle for market manipulation schemes, such as pump and dump, poop and scoop. Most of the investors believe upon the fake information provided by penny stock newsletters.

Pump and dump is one of the most famous penny stock scams, which is run by company insiders or others who control significant amounts of company’s stock. These fraudsters use the advertising tool to create a buying frenzy that artificially increases stock prices (the pump), allowing the schemers to dump their shares on the market at a high price. The new investors purchase the shares at high prices, but once the propaganda dissipates, the price of the shares falls back down to a level more aligned with the company’s true value.

Defend Yourself from Fraud:

Before you invest in small cap stocks, conduct your own research. Don’t rely exclusively on information from promoters who have an incentive to blow up small cap stock prices. For the motive to achieve the valid information about the stock issuing company, it is a good advice to review the company’s filings on the Securities and Exchange Commission's EDGAR website. One more precious guidance principle is that not to subscribe free penny stock newsletter.