Penny stock , also known as cent cents in some countries, is a common stock of a small public company trading at a low price per share.
In the United States, the Securities and Exchange Commission (SEC) defines cents shares as collateral traded under $ 5 per share, not listed on the national exchange, and fails to meet other specific criteria. In the United Kingdom, the stock price below Ã, Â £ 1 is called penny shares .
The Federal Attorney and Bureau of Investigation say that fraud is widespread in the penny stock market. Though small penny stock companies, the fraud involving them can reach tens of millions of dollars.
In the case of many penny stocks, low market prices inevitably lead to low market capitalization. The stock can be highly volatile and can be manipulated by stock promoters and pump schemes and disposal. Such shares provide a high risk to investors, who are often captivated by the hope of big and fast profits. Penny stocks in the US are often traded over-the-counter at the OTC Bulletin Board, or Pink Sheets.
Another problem with the penny stock market is that it has little liquidity, so shareholders in penny stock companies often find it difficult for them to melt the position.
In the United States, the SEC and the Financial Industry Regulatory Authority (FINRA) have specific rules to define and manage the sale of penny stocks.
Video Penny stock
Concerns for investors
Many penny stocks, especially those who trade in penny fractions, are traded thin. They can be the target of promoters and stock manipulators. This manipulator first buys large stocks, then artificially inflates the stock price through false and misleading positive statements. This is called the "pump and disposal" scheme. Pumps and dumps are a form of microcap stock fraud.
In a more sophisticated version of fraud, individuals or organizations buy millions of shares, then use bulletin websites, chat rooms, stock message boards, fake press releases, or e-mail blasts to increase interest in stocks. Very often, the offender will claim to have "inside" information about upcoming news to persuade unconscious investors to buy shares immediately. When buying pressure pushing up stock prices, price increases attract more people to believe in hype and buy stocks as well. Eventually the manipulators doing "pumping" end up with "dumping," when they sell their holdings.
The widespread use of internet and personal communication devices has made penny stock fraud easier.
Maps Penny stock
Famous cases
The Mafia had infiltrated Wall Street in the 1970s. In the 1980s Lorenzo Formato manipulated penny stocks. Formato testified at a Congressional hearing that for many years he promoted and sold penny stocks, he was involved in organized crime, and testified to the manipulation of penny stocks rampant by organized crime. Congressional hearings resulted in the passage of the Penny Stock Reform Act of 1990.
In 1989, American investors cheated at least $ 2 billion per year with a scheme involving penny stocks.
Wall Street mafia activity reportedly increased in the 1990s. On February 10, 1997, The New York Times reported that "Mafia crime families are increasingly turning to white-collar crime" with a focus on "small Wall Street brokerage houses."
In May 1997, an FBI attack operation led to allegations against Louis Malpeso, Jr., a fellow crime family relative of Colombo, for conspiring to commit securities fraud with stockbrokers Joseph DiBella and Robert Cattogio to inflate the price of a cent of First Colonial Ventures. The three defendants pleaded guilty.
Another example of an activity that limits the boundary between legitimate promotions and hype is the LEXG case. The market capitalization of the Lithium Exploration Group jumped to more than $ 350 million after extensive direct mail campaigns. This promotion leverages legitimate growth in the production and use of lithium, while touting the position of the Lithium Exploration Group within the sector. According to the company on December 31, 2010, the 10-Q form (submitted within months of direct mail promotion), LEXG is a lithium company with no assets. Revenue and assets are now zero. Furthermore, the company acquired the lithium production/exploration property, and addressed the concerns that arose in the media.
The "pump and exhaust" tactics are also known as supernovas and, unlike ordinary shares, penny stock usually moves on price action momentum.
One of the largest penny stock operators in the 1950s was Tellier & amp; In the 1980s, major penny stockbrokers included Blinder Robinson, First Jersey Securities, Rooney Pace, and Stuart-James. Big penny stockbrokers operating in the 1990s included Stratton Oakmont, Sterling Foster, U.S. Goldmen, and Hanover Sterling.
Rule
In the United States, regulators have set the money stock as a guarantee that meets certain standards. Criteria include price, market capitalization, and minimum shareholder equity. Securities traded on the national stock exchange, regardless of price, are exempt from appointment of the regulation as penny stock, since it is estimated that exchange-traded securities are less prone to manipulation. Therefore, Citigroup (NYSE: C) and other NYSE-listed securities traded below $ 1.00 during the downward market from 2008-09, while considered "low-value" securities, are technically not "penny stocks".
Although stock trading of cents in the United States is now primarily controlled through the rules and regulations imposed by the SEC and FINRA, the origins of these controls are found in state securities laws. The State of Georgia was the first country to codify comprehensive stock securities laws. Secretary of State Max Cleland, whose office imposes state securities laws, is a major supporter of the law. Representative Chesley V. Morton, the only stockbroker in Georgia's General Assembly at the time, was the main sponsor of the bill in the House of Representatives. Georgia penny stock law was then challenged in court. However, the law was finally enforced in the US District Court, and the law became the framework for laws enacted in other countries. Shortly thereafter, both FINRA and SEC enacted a comprehensive revision of their penny stock regulations.
This rule proves to be effective either in closing or severely limiting the broker/dealer, such as Blinder, Robinson & amp; The company, which is specialized in penny stock sector. Meyer Blinder was imprisoned for securities fraud in 1992, following the collapse of his company. However, the sanctions under this particular regulation do not have an effective means of overcoming the pump and disposal schemes undertaken by unregistered groups and individuals.
References
External links
- The Lowdown on Penny Stocks
- Penny Stock Rules by SEC.gov
Source of the article : Wikipedia
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