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.
When reliable information is hard to come by, fraudsters can easily spread erroneous and/or misleading information about penny stocks, in the process making profits for themselves while generating losses for clueless investors. Here are a few ways to spot potential penny stock scams:
Spam is equal to Scam. It's common for fraudsters to distribute junk mail or spam in the internet. These kinds of emails contain nothing but false and deceiving information about penny stock companies which are sent to as many people as possible. If you find one in your inbox, delete it right away.
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.
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.
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.
When reliable information is hard to come by, fraudsters can easily spread erroneous and/or misleading information about penny stocks, in the process making profits for themselves while generating losses for clueless investors. Here are a few ways to spot potential penny stock scams:
Spam is equal to Scam. It's common for fraudsters to distribute junk mail or spam in the internet. These kinds of emails contain nothing but false and deceiving information about penny stock companies which are sent to as many people as possible. If you find one in your inbox, delete it right away.
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.
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.
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 author of this essay has came across a well respected investment relations vet named 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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