LEARN ABOUT PENNY STOCKS BEFORE INVESTING!
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United States: U.S. prosecutors and the Federal Bureau of Investigation say that fraud is widespread in the penny stock markets, which host a growing number of cannabis and hemp companies. Several of these firms have faced fraud and other charges by the United States Securities & Exchange Commission (SEC).
Penny stocks are also known as “OTC” stocks, “pink” stocks, “cent” stocks or the more palatable “small caps”
Penny stocks are common shares of small public companies that trade at low share prices, often resulting in low market capitalization. They can be highly volatile, and are subject to manipulation by stock promoters in which investors suffer from “pump and dump schemes” characterized by aggressive public relations and sales of a “get rich quick” nature.
The penny stock market has little liquidity, so shares in penny stock companies are often difficult to cash in.
UK: The UK’s Financial Conduct Authority notes: “Some stockbrokers use high-pressure sales tactics to sell penny shares to investors, despite the shares not being suitable for everyone. These shares are often very high risk, can be difficult to sell and may be quoted in pence.
“The offer to invest in penny shares often comes from stockbrokers cold-calling investors, after taking their phone number from publicly available shareholder lists.
“The high-pressure sales tactics can also come by email, post, word of mouth or at a seminar.”
Relevant links:
SEC Advisory: “Pump & Dump” stocks
UK FCA on “Penny Shares”
Fraud case has hemp in the news, unfortunately
U.S. CBD firm facing fraud charges*
*Case outcome: Final judgment as to Defendant Michael J. Mona, Jr.