Very good synopsis. I just feel as though the vast majority of Penny Stocks are in fact scams. I also find it surprising the the U.S. government allows these investment schemes to continue to run, and they even approve them to do so as long as they are making the proper SEC filings (which really is nothing noteworthy).
I have raised a lot of money privately for a previous business venture, which I eventually sold off. Recently my partner and I decided to try and raise investment for another business we have started. We were approached by a consultancy firm that wanted to take us public via reverse merger. It sounded exciting at first, and we realized we would have been able to make a ton of money off of doing so, but in the end it wasn't the honest thing to do.
The reverse merger would have taken our company public as a penny stock, but the consultancy firm would have ended up putting terms on the agreement that would have basically riddled the company with debt. We could have made millions in the short term, but it was obvious that the company would have failed because of the toxic debt that the consultancy company that would ultimately take up private would have burdened us down with.
From what I've seen, the majority of penny stocks are run this way. The consultancy firm would have pumped the stock up, using wording that couldn't be construed as "misleading" although it would have surely been misleading to a certain degree. Once pumped up they would have claimed shares owes to them through the toxic debt, sold those shares, sending the stock plummeting, and then do the same thing over and over again until the company was run into the ground and they would have made their millions. This is a scam, albeit a legal one, and I feel as though 99% of penny stocks are being run on this type of scheme. It's unfortunate, but at the same time it is profitable to the CEOs of these companies, the consultancy firms, and some lucky investors, or inside traders.