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 terrible lack of information paves way for fraudsters to spread out false facts and rip off clueless investors. Consequently, they profit while investors lose out. But, there are ways to identify penny stock scams and here are five of them:
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.
Cold Calls - Feel the Heat Dishonest stockbrokers often set up "boiler rooms" (as in the movie with Vin Diesel and Giovanni Ribisi) where platoons of high-pressure salespeople utilize rows and rows of telephones to make cold calls (unsolicited phone calls) to as many potential investors as humanly possible on any given day. These strangers hound their target clients on the phone to put down money on house stocks stocks that their firm buys or sells, or has in its inventory in order to drive stock prices 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 general, using the above ploys, hawksters will claim to possess "inside information" regarding impending developments, or else use a so-called "infallible" combination of economic-indicator and stock-market data to pick out good stocks. But remember: Once these fraudsters have sold enough shares, the stock's price typically falls...and plenty of bamboozled investors lose their hard-earned money.
This terrible lack of information paves way for fraudsters to spread out false facts and rip off clueless investors. Consequently, they profit while investors lose out. But, there are ways to identify penny stock scams and here are five of them:
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.
Cold Calls - Feel the Heat Dishonest stockbrokers often set up "boiler rooms" (as in the movie with Vin Diesel and Giovanni Ribisi) where platoons of high-pressure salespeople utilize rows and rows of telephones to make cold calls (unsolicited phone calls) to as many potential investors as humanly possible on any given day. These strangers hound their target clients on the phone to put down money on house stocks stocks that their firm buys or sells, or has in its inventory in order to drive stock prices 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 general, using the above ploys, hawksters will claim to possess "inside information" regarding impending developments, or else use a so-called "infallible" combination of economic-indicator and stock-market data to pick out good stocks. But remember: Once these fraudsters have sold enough shares, the stock's price typically falls...and plenty of bamboozled investors lose their hard-earned money.
About the Author:
The journalist who wrote this piece has located a well respected investment relations vet by the name of Wade Entezar.
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