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FINRA and the SEC Issue Alert to Warn Investors of Penny Stock Scams

The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have issued an alert to warn investors of fraudulent penny stock scams touting what may essentially be stocks of dormant shell companies which have little to no business operations or non-cash assets and pose the threat of substantial financial losses for those who invest in them.

The SEC’s alert notes that fraudsters use dormant shell companies in what are known as pump-and-dump schemes. These schemes involve the buying of shares in the shell company, claiming the company to be a great investment opportunity, even hyping up the company with aggressive marketing and the announcing of new management or re-incorporation, possibly under a new name. All of these tactics are meant to “pump” the company stock back to life, thereby creating more trading and getting the stock prices to shoot up.

Unfortunately for investors, the fraudsters then cash out by selling their shares at the manipulated, higher prices (this is the “dumping” part of the pump-and-dump scheme), while the stock prices plummet, leaving investors with potentially worthless stock and an investment nightmare.

FINRA and the SEC offer 5 tips for investors:

1. Research the company. Has it been dormant and brought back to life?
2. Where does the stock trade? Most pump-and-dump schemes involve stocks not on the NASDAQ or other registered national securities exchanges.
3. Look out for companies with frequent name changes or business focuses.
4. Check for huge reverse splits.
5. Be cautious of “Q” in a stock symbol, as stock symbols with a fifth letter of “Q” on the end denote the company has filed bankruptcy.

Have you suffered losses from a penny stock scam? Have you been fraudulently solicited to invest in a company that was the target of a pump-and-dump scheme? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against financial advisors, stockbrokers, and their brokerage firms who may have fraudulently solicited an investment as part of a penny stock scam.

This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over , Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our firm are devoted to representing investors and financial industry professionals throughout the United States and internationally! Please visit our website, www.secatty.com, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this article and/or any related matter.