The SEC put out an alert regarding microcap fraud.
What is Microcap Fraud?
Microcap stocks are stocks promoted by a fraudster who inflates the stock price by getting new investors to invest. Once the the stock price hits an all time high through new investment, the fraudster will then sell their shares and take off with the cash, leaving investors holding the stock, which has little to no value. This type of fraud is now being perpetrated through emerging technologies, such as crypto assets, which make it easier for these manipulation schemes to work.
For instance, many of these schemes will center around a development designed to positively affect the company’s stock price. Fraudsters will lure investors in by telling them to “get in on the ground floor” before this development takes off.
For a more detailed overview of this topic, please visit our Microcap Stock Fraud FAQ.
Microcap Fraud Manipulation
Fraudsters are able to spread false information and manipulate microcap and penny stocks, because publicly-available information about them is quite scarce. It’s easier for a fraudster to manipult ethe price of a microcap or penny stock, because there lacks liquity you’d normally see with larger publicly traded companies. Furthermore, these stocks do not trade on national securities exchanges, which makes them hard to monitor.
For more information on this topic, please read our Market Manipulation FAQ.
Warning Signs
- Unsolicited Stock Advice – be wary if a company or representative of a compnay is promoting a stock more than the product or service
- No Physical Operations – be cautious of penny stocks that are being promoted by shell companies with no real business operations
- Abnormal Pricing or Volume – be on alert for stocks that have sharp increases in price and/or volume
- Suspension – check to see if the company seeling the stock has been suspended from trading
- Name Changes – if the company has changed it’s name, it may indicate a lack of real operations (see bullet 2)
Many fraudsters may promote a stock on social media, investment research websites, investment newsletters, online advertisements, email, Internet chat rooms, direct mail, newspapers, magazines, and radio. This is all too common with digital assets as well, as thousands of new cryptocurrencies emerge each year.
Seeking Legal Advice
Insiders who know of a microcap fraud scheme taking place may be eligible for rewards and protection. Those who choose to blow the whistle anonymously must do so with the help of a U.S. based attorney. If you know of a microcap fraud scheme where the montary sanctions are likely to exceed $1 million, get in touch with one of our attorneys today for a free and confidential case evaluation.
