“Investors should be on the lookout for press releases, tweets or posts aggressively promoting companies poised for explosive growth because of their ‘hot’ new product,” Gerri Walsh, FINRA’s senior vice president for investor education, said in a statement. “In reality, the company may be a shell, and the people behind the touts may be pump-and-dump scammers looking to lighten your wallet.”
"Penny stocks" are generally defined as companies that trade on the over-the-counter market or so-called pink sheets because they don’t meet the requirements to list on one of the major exchanges.
Regulators “continue to be concerned about pump-and-dump schemes in which a fraudster deliberately buys shares of a very low-priced, thinly traded stock and then spreads false or misleading information to pump up the stock’s price,” the Financial Industry Regulatory Authority and the U.S. Securities and Exchange Commission said in a joint investor alert Thursday. “The fraudster then dumps his shares, causing the price to fall, leaving investors with worthless or nearly worthless shares of stock.”
FINRA and the SEC on Thursday sought to remind investors that such stocks can often involve shell companies that may be on the brink of insolvency "
It suggests investors remain wary of frequent changes of the company’s name or business focus, noting that such changes are often part of “pump and dump” schemes that sees manipulators juice interest in a company to push up its stock price before dumping mass quantities of shares that leave other investors with a loss.
