Penny Shares Scam

When you buy penny shares, or any shares that means you technically own a percentage however small of the company you invested in.

Penny stocks are stocks that normally trade for less than $1, even as little as 1p. This area of the stock market is poorly regulated and so there is a little of penny stock fraud commonly described as penny Shares Scam.

The internet is a breeding ground for Penny Stock Scam because information can be spread quickly and often with apparent authority. Forums, emails, are common sources. It is easy to be misled by what appear to be cast iron qualifications online which are no more than a con job. Fortunately the regulatory authorities have woken up to the widespread Penny Shares Scam.

WHAT DOES A PENNY SHARE SCAM LOOK LIKE?

1.       The Pump and Dump. Probably the best known scam, is where a small group of people working together will buy a large number of penny shares at a very low price. Then usually on the internet via forums, emails, etc they let it be known that the Company they have invested in is about to expand dramatically, or has found precious metal, or oil, or there is big good news about to break. Any lie to arouse interest. The gullible small investor sees the headed page this information is on, and is fooled into buying the penny stock. The demand skyrockets the stock, the speculators dump their shares before the truth that there is no news comes out, and the innocent punter is left high and dry with stock whose value will now collapse. 

REMEMBER ALL THAT GLISTERS IS NOT GOLD. Headed paper, an impressive website Can all be produced in a grimy little bedroom on a five year old laptop. A telephone can be answered and a background of office noise can easily be supplied by disc, creating the impression of a busy office. If you want to believe what you see or hear, then the perpetrator of the penny share scam will succeed. 

2.      A penny shares scam called the Poop and Scoop is the opposite of Pump and Dump. What happens in this case is the value of the stock is sent plummeting by very negative stories, false rumours put out in the same way as before. As the value plummets they buy, and then when the rumours are proved false the share price rises, and they take their profit.  

3.      Similar to the Poop and Scoop is Short Selling before spreading the rumours. Short selling of course is selling shares you don’t own, but have effectively borrowed from your broker. As these shares are sold the money is credited to your account, but sooner or later you have to buy back the same number of shares you ’borrowed’. This is known as ‘covering’. The penny shares scam works because the scammer is buying them back for less than they paid for them so keep the difference. 

4.      Then there is front running, which is known as insider trading. Here insiders or brokers get wind of good news and buy lots of shares prior to the news breaking. This is illegal. 

5.      Another nasty trick is with penny stock that has done nothing for months even years, and is called Circular Trading. A group of people who have a number of broker accounts in other countries buy and sell shares in that company between themselves. This makes the innocent onlooker believe something is happening in the company, and people begin to buy the penny shares again forcing the price up. The scenario then follows the pump and dump.

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