January 28, 2011
a financial backer guide to avoiding micro-cap scams
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 = 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.
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 Counts! Another clever ploy utilized by fraudsters is publishing press releases with exaggerated claims and building fabricated details about their sales, assets, market offerings, and projected revenues. These are unreliable news but are published in legitimate news portals and financial sites. An example is the pump and dump, which aggressively pushes readers to acquire penny stocks, or to sell them before prices drop down.
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 author of this paper has uncovered an advisor 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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