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Investing in penny stocks is a great option for many investors. However, one must properly monitor the risks and always get accurate, updated information. The thing is: getting enough data about “penny stocks” issued by small-scaled companies can be challenging. Why? These companies are not obligated by the SEC to file updates. Hence, investors usually have a hard time finding out about these companies’ management, finances, and major market offerings.

This terrible lack of information paves way for fraudsters to spread out false facts and rip off clueless investors. Consequently, they profit while investors lose out. But, there are ways to identify penny stock scams and here are five of them:

Spam is Scam. Sending junk email or spam is one of the common ways used by fraudsters to spread fake information. This method lets them reach multiple investors and it can be done quickly and cheaply. It is also an easy way to target thousands of potential clients online.

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.

Feeling the Heat of Cold Calls. There are shrewd stockbrokers who use boiler rooms where a lot of people are hired to make unsolicited calls to their target investors. They convince the potential clients in every way possible to invest some amount of money so that the price of the stocks will go 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.

It’s All About PR! Penny stock fraudsters sometimes issue press releases containing hyped-up or exaggerated data, or sometimes even outright fabrications, about their microcap’s sales, assets and/or acquisitions, projected revenues, or new products/services. These questionable PRs are then announced through legitimate financial websites and online news portals. For instance, in the classic “pump and dump” scheme, messages are posted on the Net aggressively, urging readers to buy a penny stock quickly, or to sell before its price plummets.

Scammers might have a few more tricks up their sleeves but watch out for these five. And always remember, the hawkers will do anything to get you to invest. They would even claim to have insider information. However, all of these are just ploys to get you to part with your hard earned cash. When they have gathered enough sales from their shares, the stock prices would deflate, leaving investors like you to crash and burn.

The contributor of this piece has distinguished a Wall Street veteran 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.

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