a stock holder guide to avoiding micro-cap scams
Up-to-date, accurate Information is still your best tool when it comes to investing in stocks prudently and effectively. But data on “penny stocks” stocks that trade for about $5 or less are often quite difficult to search out. Many companies that issue these stocks don’t have to file financial updates with the SEC, so it’s actually quite hard for potential investors to get real facts about the penny stock companys management/officers, products/services, and finances.
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.
Hyping it up with Promos. Several penny stock companies tap into sales or promotions firm in order to create a credible image. They use different forms of media such as TV, radio, newsletters, and online streaming shows to promote their products in full blast. These agencies are often responsible for the spam messages you receive. Although there are laws stating that the sponsoring party should be disclosed, most fraudsters don’t observe this – they just continue making people think that they are getting sound advice.
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.
Wrong Number…Or Is It Really? Beware of receiving a “misdialed” call from some stranger, leaving a “hot” or “don’t-miss-this” investment tip for their “friend.” Such messages are designed to sound as if the caller didn’t know or realize that they were leaving the “hot tip” with a wrong number. If you get that kind of message, it’s often not a wrong number at all! More likely it’s from someone being paid to leave such messages to random listings 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 columnist of this feature 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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