Penny Stock Scams

Penny stocks are intriguing to investors because of their low value and the possibility of high gains, but with the possibility of high gains comes a greater risk of scams and fraud. Because these low value stocks can be manipulated by small groups for a profit, they are ripe for unsavory and unethical activity. If you plan on dabbling in this market, it’s important to understand some of the most common scams out there.

The most common scam or form of fraud is probably the pump and dump. Put simply this is where investors looking to cash in promote a specific stock to inflate the price of it, after they have bought shares at an extremely low price (the pump). Once the price is inflated they sell their shares and get out causing the stock prices to fall, leaving unknowing investors with virtually worthless stock (the dump).

But this isn’t the only scam in this market. Another way investors manipulate this market is through chop stocks. Continue reading

Penny Stock Fraud

Be careful because penny stock fraud is frequent and pervasive. I don’t mean to scare you away from penny stock trading, however you need to realize that many unscrupulous individuals are out there eager to exploit newbies in this field.

The SEC (Securities and Exchange Commission) estimates that penny stock fraud costs the economy billions of dollars every year. As stocks not on the NYSE or NASDAQ often do not need to fulfill the same standards to trade within Pink Sheets or the OTCBB, they can be much more susceptible to being manipulated and falsified online.

While some microcap fraud may occur on the NASDAQ Small Cap Market, a vast majority of stock fraud occurs in the OTC Market. So proceed with caution and always do your due diligence when trading penny stocks. Continue reading