Penny Stock Fraud

Penny Stock fraud occurs on the stock market on stocks that trade for low amounts of money, often less than a penny, hence the name. Because the stocks are so low in value they are often poorly regulated and this allows online scammers to manipulate the stock in a number of ways to their advantage.

The Pump and Dump Method
The most popular method used by penny stock fraudsters, the pump and dump method refers to the scamming technique that involves a small group of scammers buying a number of shares in very low value stock. Once purchased, the scammers will campaign positively regarding the stock through the use of pre-established websites, mailing lists and newsletters. The positive information the scammers use is often false, and is simply designed to get amateur investors to invest in the low value stock. When enough people invest, the value of the stock sky rockets and the scammers will then sell. The value will then fall and most of the investors will make a loss.

The Poop and Scoop Method
Essentially the inverse of the pump and dump method, scammers will negatively publicise a stock in order for the value to drop. The scammers will then purchase large quantities of stock and once their negative feedback is dispelled as false they will see their stock gain value on the rebound.

Online users should mainly be aware of the pump and dump method as this relies on innocent amateur investors buying into the penny stock market. The best advice is to not join mailing lists of penny stock sites or sign up for their newsletters. The vast majority of these sites simply send out false information to bait victims into hastily investing, where upon a monetary loss is virtually inevitable.

Additionally watch out for sites that promote the usual `financially free` lifestyle like many other get-rich-quick scams often utilise, such as the big houses, fast cars and vacation photos and the rags-to-riches sob stories that try and lure people into joining on the premise it will make them wealthy. People who sign up to these sites are typically force fed useless information so the scam operators can make a profit and the unfortunate victim nearly always a loss.

Best advice – if you are not an experienced trader, avoid hyped up sales pitches that these penny stock sites provide.

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