Investing in penny stocks is a great option for many investors. However, one must properly monitor the risks and always get accurate, updated information. The thing is: getting enough data about “penny stocks” issued by small-scaled companies can be challenging. Why? These companies are not obligated by the SEC to file updates. Hence, investors usually have a hard time finding out about these companies’ management, finances, and major market offerings.
This situation becomes an advantage for fraudsters as they can easily give wrong information involving penny stocks. It turns out that they can profit from the unawareness of the investors. In order to detect scams about penny stocks, here are some suggested methods:
Spam = Scam. Fraudsters frequently send out junk email (commonly known as “spam”) over the Net to disseminate false info, cheaply and quickly, about penny stocks to hundreds, even thousands, of possible investors. Spam lets unscrupulous sellers target an almost unlimited number of investors online. Chances are, if your email program puts an email in your spam folder, it’s just that junk.
Promo Plays. Penny stock companies would usually employ third party firms to make promotional campaigns aimed at increasing their stocks exposure. These include advertising in television, radio and online shows. The junk files that you receive usually come from these promoters who are paid to advertise penny stock campaigns. Even if there is a law requiring them to reveal the sponsor, a lot of fraudsters do not comply or just make people believe that they have a good financial donor.
Heating it up with Cold Calls. Cold calling is one of the tactics of dishonest stockbrokers. In most cases, there is a sales force tasked to cold call as many investors as possible in a day. These people push investors to deposit their cash for “house stocks”, or stocks which the firm markets, acquires or keeps in its inventory. But the only purpose of this tactic is to drive up the stock prices.
Wrong Number? Maybe Not. If you receive a call from a stranger telling you some investment advices which are supposed to be given to a friend, you better be wary. These callers are trained in such a way that they will look like they are unaware that they dialed the wrong number. In cases like these, you can safely assume that they really intended to call you. These wrong number callers are paid to send messages to their targets from a list of phone numbers.
PR Matters! Another method of fraudsters is the use of press releases which contain overstated information regarding their services, products, and financial status. Suspicious PRs like these are usually the topic in online finance and news sites. As an example, the “pump and dump” system makes use of exaggerated PR to encourage investors to purchase a stock as early as possible.
Scammers might have a few more tricks up their sleeves but watch out for these five. And always remember, the hawkers will do anything to get you to invest. They would even claim to have insider information. However, all of these are just ploys to get you to part with your hard earned cash. When they have gathered enough sales from their shares, the stock prices would deflate, leaving investors like you to crash and burn.
The author of this paper has distinguished an investment guru by the name of Josh Yudell. I believe Josh Yudell is a Wall Street veteran, having spent his entire career in the fields of investor relations and investment banking.
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