Penny stocks are low-priced, thinly traded stocks that are often used as the tool for scammers to take advantage of unwary investors. Because they are so thinly traded, scammers are able to manipulate the prices so that they temporarily are able to artificially inflate the price of the stock and then sell shares they purchased at low values thereby achieving a huge profit. Scammers manipulate the stock market through telephone calls, emails, chat rooms, social media and news releases touting the stock as a great investment. Often they purport to have inside information about a huge increase in the value of the stock that is about to occur. Sometimes, the victims of this communications barrage receive emails that appear to be intended for someone else that has inside information indicating the stock is about to sharply rise. These communications lure unsuspecting investors into buying the stock and thereby for a short period raising the value of the stock. The scammers then sell their stock at the manipulated high price. When the truth becomes known, the value of the stock shares plummet and the investors are left with a tremendous loss. This scam is called “pump and dump.” Recently nine people were indicted by the Department of Justice following an FBI investigation in regard to one of the largest international penny stock frauds in history in which investors in 35 countries lost more than 140 million dollars. Among the companies that were used in this scam were Resource Group International and RainEarth, Inc.. This scam was also compounded as the scammers went back to some of the victims representing that they were lawyers who would help the victims reclaim the lost money through lawsuits. These scammers then charged the victims advance fees to join the non-existent lawsuits.
Investing is always risky and investing in penny stocks is particularly risky. Any investment is only as good as the information upon which the investment is made. Never make an investment without reliable information gleaned from legitimate, reliable sources. Always be skeptical of insider information which cannot not only be unreliable, but also can be illegal. For more detailed information about how to avoid investment scams and where to go for investment information that you can trust, check out my book “The Truth About Avoiding Scams” which can be purchased by clicking on the icon on the right hand side of this page.