Penny stocks are generally defined as stocks that trade on the OTC BB or Pink Sheets exchange. Some other regards this scheme as a common stock that trades for less than $5 a share and is traded over the counter (OTC) through quotation services such as the OTC Bulletin Board or the Pink Sheets.
What Are Penny stocks?
In the UK markets, a penny stock, or penny shares commonly suggests to a stock and shares in small cap companies. These companies with a market capitalization of less than £100 million and/or a share price of less than £1 with a put forward spread greater than 10%. Financial Services Authority (FSA) declares a standard regulatory risk warning about penny shares to the public who take part.
Penny stock scam
It is very common that penny stocks are frequently persistently supported as part of dishonest pump and dump schemes. Some fraud companies adopts Pump and dump schemes. This scheme, involves use of false or misleading statements to build up stocks, which are “dumped” on the public at exaggerated prices. Such schemes involve telemarketing and Internet fraud. There are other such schemes whose sole purpose is to cheat people. In the chop stocks scheme, stocks are bought for pennies and sold for dollars to overseas or domestic retail investors. This leads to the high benefit for both brokers and stock promoters massive profits.
The payment of brokers usually is made “under the table” secret payoffs to put up for sale such stocks. The subject stocks usually have small or no liquidity earlier to the block purchase. After the block is bought, the firm’s partaking brokers will sell the stock to their brokerage customers at the then-current quoted ask price, to the often victimized investors who are generally unaware of this practice.
There are various ways to promote fake penny stocks that are employed by companies. The usual penny stock scam are postings about a stock from unknown, fake or misleading press releases issued by the company, spam e-mails and junk faxes that hype absurd and fake claims, dishonest newsletter writers who support a stock for a fee, paid posters, or foreign buyers all in attempt to drive up the share price while the insiders sell.