Penny Stock Fraud 101
Penny stocks are usually microcap companies. Fraud that occurs in these types of stock are the pump and dump, chop stocks, and the dump and dilute. The “pump and dump” scam requires the posting of misleading or false statements that are used to manipulate the stocks. Through the use of the internet, the scammers then “dump” these stocks to the public at extremely high rates. Chop stocks, on the other hand, is a type of scam where stocks are bought at lower rates and sold for a much higher price, which gives both the promoters and brokers a significantly large amount of profit in undisclosed payoffs. And then, there’s the dump and dilute scam, where the fraudulent companies issue shares repeatedly that result in the stocks reverse-splitting. Here are ways on how to avoid being the victim.