The SEC has issued an Investor Alert to warn investors about fraudulent stock promotions. Promoters manipulate stocks by artificially driving up stock prices to then turn around and sell their own shares at the inflated price, making money at investors’ expense.
Fraudsters often send potential investors false and misleading information encouraging them to purchase shares in a company. As the demand for the stock rises and drives up the market price, promoters or insiders sell their own shares. As a result, the price of the stock abruptly plummets, leaving investors with nearly worthless stock.
According to the SEC, microcap stocks, including penny stocks, are more susceptible to stock price manipulation. Publicly-available information about microcap companies often is scarce, making it easier for fraudsters to spread false information. In addition, it is often easier for fraudsters to manipulate the price of microcap stocks because microcap stocks historically have been less liquid than the stock of larger companies.
For more information on how to spot the warning signs visit http://www.sec.gov/oiea/investor-alerts-bulletins/ia_promotions.html