Watch out for these “Red Flags” when investing in Microcap Stock SEC Trading Suspensions Spam Assets are Large but Revenues are Small Odd Items in the Footnotes of Financial Statements Unusual Auditing Issues Insiders Own Large Amounts of Stock
Find out whether the company has registered its securities with the SEC or your state's securities regulators. Make sure you understand the company's business and its products or services. Read carefully the most recent reports the company has filed with the SEC and pay attention to the company's financial statements, particularly if they are not audited or not certified by an accountant. If the company does not file reports with the SEC, be sure to ask your broker for what's called the "Rule 15c2-11 file" on the company. Check out the people running the company with your state securities regulator, and find out if they've ever made money for investors before. Also ask whether the people running the company have had run-ins with the regulators or other investors.