If you want to invest in stocks, you need to make sure that you are provided with reliable and updated information. However, the information regarding the "penny stocks" or the affordable stocks offered by "micro-capital" groups are not readily available. Since these groups are not required to provide data regarding their finances, investors would find it hard to access updated details about the products and services of a company issuing penny stocks.
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 is Scam. Sending junk email or spam is one of the common ways used by fraudsters to spread fake information. This method lets them reach multiple investors and it can be done quickly and cheaply. It is also an easy way to target thousands of potential clients online.
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.
Feeling the Heat of Cold Calls. There are shrewd stockbrokers who use boiler rooms where a lot of people are hired to make unsolicited calls to their target investors. They convince the potential clients in every way possible to invest some amount of money so that the price of the stocks will go up.
Oh Sorry, Wrong Number. Another scam tactic is the "misdialed" call. Usually, you would get a call from someone leaving a great investment advice for his friend. The caller would seem unaware that he dialed the wrong number, but in reality, this is intended. Some people are employed specifically to make misdialed calls to a number of people from a phone listing.
It's All About PR! Penny stock fraudsters sometimes issue press releases containing hyped-up or exaggerated data, or sometimes even outright fabrications, about their microcap's sales, assets and/or acquisitions, projected revenues, or new products/services. These questionable PRs are then announced through legitimate financial websites and online news portals. For instance, in the classic "pump and dump" scheme, messages are posted on the Net aggressively, urging readers to buy a penny stock quickly, or to sell before its price plummets.
In short, these schemes are used by unscrupulous individuals claiming that they have the latest information about the best stocks in the market. They even announce their possession of financial indicator to help the investor choose the right stocks. One thing is for sure: when these people sell their shares, the price of a stock will definitely decline, making newbie investors lose a lot of money.
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 is Scam. Sending junk email or spam is one of the common ways used by fraudsters to spread fake information. This method lets them reach multiple investors and it can be done quickly and cheaply. It is also an easy way to target thousands of potential clients online.
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.
Feeling the Heat of Cold Calls. There are shrewd stockbrokers who use boiler rooms where a lot of people are hired to make unsolicited calls to their target investors. They convince the potential clients in every way possible to invest some amount of money so that the price of the stocks will go up.
Oh Sorry, Wrong Number. Another scam tactic is the "misdialed" call. Usually, you would get a call from someone leaving a great investment advice for his friend. The caller would seem unaware that he dialed the wrong number, but in reality, this is intended. Some people are employed specifically to make misdialed calls to a number of people from a phone listing.
It's All About PR! Penny stock fraudsters sometimes issue press releases containing hyped-up or exaggerated data, or sometimes even outright fabrications, about their microcap's sales, assets and/or acquisitions, projected revenues, or new products/services. These questionable PRs are then announced through legitimate financial websites and online news portals. For instance, in the classic "pump and dump" scheme, messages are posted on the Net aggressively, urging readers to buy a penny stock quickly, or to sell before its price plummets.
In short, these schemes are used by unscrupulous individuals claiming that they have the latest information about the best stocks in the market. They even announce their possession of financial indicator to help the investor choose the right stocks. One thing is for sure: when these people sell their shares, the price of a stock will definitely decline, making newbie investors lose a lot of money.
About the Author:
The essayist who wrote this commentary has identified 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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