Penny stocks trade for $5 per share or less but are commonly found for under $1 and even as low as one penny. Since these stocks are poorly regulated, many penny stock scams have arisen. There is so much penny stock fraud, in fact, that terms have been developed to describe the various scams. Investors should be wary of penny stocks and the techniques used by scammers.
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https://sites.google.com/site/goldandsilver2012/latest-articles/don-t-fall-for-penny-stock-scams
Pump and Dump is the most common penny stock scam. A small group of people accumulate a large number of penny stock shares. They then release news so positive that it entices unknowing investors to purchase shares. Of course, the positive news is false, but before the newest investors know this, they have caused the share price to rise and the scammers have cashed out and are long gone.
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https://sites.google.com/site/goldandsilver2012/latest-articles/don-t-fall-for-penny-stock-scams
A scam opposite to this is referred to as Poop and Scoop. Scammers spread negative information, again false, regarding a company that serves to drive down its share price. As the stock price falls, the scammers purchase shares, knowing the price will rebound after the rumor has been dispelled. A related scam involves the scammers short selling the shares before the rumor is released, then covering their positions at a profit.
Note: While this website has hundreds of free articles, if you're looking for a comprehensive understanding of investing in gold, check out our Front Running is another fraudulent technique common within the penny stock world. In this scam, the news is true. Brokers and insiders who are in the know take large positions before the news becomes public. When an insider is involved, this practice is considered insider trading, which is illegal.
Stocks that have long been dormant may be the subject of Circular Trading scams. Insiders trade the same shares between their own multiple accounts, creating the false perception of activity. Once this movement catches the eye of an unknowing investor, the insiders engage in one of the scams explained above.
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https://sites.google.com/site/goldandsilver2012/latest-articles/don-t-fall-for-penny-stock-scams
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http://learngoldcoins.com/don%E2%80%99t-fall-for-penny-stock-scams/
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