a financier guide to escaping microcap fraud
Like any other business opportunity, penny stock investment requires finding out as much as you can about the product being offered and weighing its advantages and disadvantages. If you receive a phone call or email that urges you to buy a hot stock pick of the day, you have a choice: Either be careful, even skeptical, or accept the offer blithely.
Penny stock offers are many and varied and all of them tempting. They can flood your inbox with “once-in-a-lifetime” offers. These email messages are often well-written and designed, with persuasive words and convincing testimonials from upwardly-mobile-looking personages. Phrases such as “hot penny stocks,” “best penny stocks,” “top penny stock picks” the list goes on and ever on are quite often used. If you don’t know much about stock trading, there’s a higher-than-average probability that you’ll plump for the deal and pray to strike it rich. If, on the other hand, you’ve learned from your own or others’ experience, you’ll know deep in your gut that this just might be another fraudulent offering.
Well then, how can you tell if it’s a scam? Easier said than done, really. But there are some common signs you can look out for:
One sign to be wary of are astronomical returns, or if they guarantee success in the stocks. Stocks are risky investments. There are no guaranteed returns to it. Astronomical returns are possible but rare. You need to have been able to time the market well and your stock pick was right on target. But usually, returns from the stock market don’t reach the sky. They are higher than most investment vehicles but not absurd returns. Bottom line is foolproof returns are impossible. Only savings can boast of safety.
Second, scams usually say the deals are for a limited time only and the investment price is very cheap. This makes you think the coast is clear and you will be getting a bargain. But once again, not doing due diligence on any investment is the biggest risk you can take. You can lose all your money in that single lapse of judgment.
More often than not, these shady stock sellers will regale you and attempt to strike awe with glittering success stories of big companies that they’ll claim started with their very own stock picks. If you happen to come across such claims of how some of today’s Fortune 500 companies started out with penny stock shares don’t fall for it. This approach has often been used, and is in fact overused.
So how can you tell which penny stock offers are scams? It’s not easy; but it’s not that hard either. Don’t be gullible; don’t be easily fooled. Verify the stock’s authenticity, and the credibility of the broker or promoter touting it. Check their company records, which ought to be available online; if they’re not forthcoming with their information, then there’s something wrong. Make sure the company offering the shares has legitimate state and federal licenses to do business. Always double-check to see if such companies are registered with the SEC.
You should never cave in to pressure to invest in something. Patience has its virtues in making money. Always remember the rule 1 in investing is to never lose money. By remaining skeptical and doing due diligence, the odds of losing money is significantly lessened. Success comes from investing in companies with great fundamentals for a long term horizon.
The journalist who wrote this paper has identified a capital structure expert by the name of Josh Yudell. I believe Josh Yudell to be widely considered an expert in the fields of investor relations, SEC compliance, corporate finance and capital structure.