Penny stock fraud typically involves one or several kinds of investor fraud: Pump and dump schemes that use false or misleading statements to hype up stocks, which are then “dumped” on the public at inflated prices, usually through telemarketing or Internet fraud; chop stocks, or stocks bought for pennies but sold for dollars, affording both brokers and promoters massive profits “under the table” in undisclosed payoffs; and dump and dilute schemes, wherein fraudulent companies issue shares repeatedly, reverse-splitting the stocks or changing their names. Following are a few ways to protect yourself against such scams:
Beware of emails that promote any kind of stock aggressively. People who do this are often not operating under their real names. They can be anyone from a stockbroker or a company insider.
Secondly, ignore unsolicited telemarketing calls. These people usually work from temporary offices equipped with telephones being manned by aggressive salesperson’s who promise things that are too good to be true. If you receive a call like this, don’t give in to the pressure! Never invest in any stock that you don’t even understand at all. The logical thing to do in this situation is to hang up.
Third, check your broker’s background before doing a transaction with them. Ask for your broker’s CRD number and verify it through your state security office. Aside from this, check if that broker has any disciplinary record and if the stock they are offering is duly registered. Never transact with a broker who can’t even provide you any written data regarding the investment that they are pushing.
The SEC can suspend the trading of any stock for up to 10 days when it believes that data or press releases about the company is unreliable or false. When the stock you’re interested in has been the subject of a SEC suspension, think twice before shelling out your shekels. You’ll find up-to-date information about the latest trading suspensions on the SEC’s official website.
Also, did you know that there is a regulation (Regulation S) that doesn’t require firms to register stocks sold to foreign clients? Because of this regulation, publicly-traded companies are able to sell their unregistered shares at cheap prices to a supposed off-shore investor. These scammers then sell the stocks back to the American public at sky-high rates, receiving a very large profit. These profits are then shared with company insiders.
If you think you’ve been the victim of penny stock fraud, remember that according to the law, you only have a limited time period to take legal action. Talk to your broker right away, and find out exactly what happened who said what, when? Did you take notes on what you were told at the time? If you think your broker engaged in fraudulent transactions, put your complaint in writing immediately and send it to their firm. This could be the only way to prove that you complained to them.
Other than this, you can send your complaint letter to the state securities regulator’s office as well as the Securities and Exchange Commission using their online complaint form.
The writer of this feature has detected an investment banker 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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