a financial backer guide to dodging small-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.

When reliable information is hard to come by, fraudsters can easily spread erroneous and/or misleading information about penny stocks, in the process making profits for themselves while generating losses for clueless investors. Here are a few ways to spot potential penny stock scams:

Spam is equal to Scam. It’s common for fraudsters to distribute junk mail or spam in the internet. These kinds of emails contain nothing but false and deceiving information about penny stock companies which are sent to as many people as possible. If you find one in your inbox, delete it right away.

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…Or Is It Really? Beware of receiving a “misdialed” call from some stranger, leaving a “hot” or “don’t-miss-this” investment tip for their “friend.” Such messages are designed to sound as if the caller didn’t know or realize that they were leaving the “hot tip” with a wrong number. If you get that kind of message, it’s often not a wrong number at all! More likely it’s from someone being paid to leave such messages to random listings of phone numbers.

PR Matters! Another method of fraudsters is the use of press releases which contain overstated information regarding their services, products, and financial status. Suspicious PRs like these are usually the topic in online finance and news sites. As an example, the “pump and dump” system makes use of exaggerated PR to encourage investors to purchase a stock as early as possible.

In general, using the above ploys, hawksters will claim to possess “inside information” regarding impending developments, or else use a so-called “infallible” combination of economic-indicator and stock-market data to pick out good stocks. But remember: Once these fraudsters have sold enough shares, the stock’s price typically falls…and plenty of bamboozled investors lose their hard-earned money.

The writer of this treatise has came across a well respected investment relations vet by the name of 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.