Actually, I think the risks to pennyscammers of getting pinged for fraud is very low.
Pissing off somebody who has the ear of Chris Cox is IMO the big thing to avoid: eg touting non-existent homeland security contracts, fax spam-blasting an SEC regional office, defrauding well-connected people.
If you do avoid that, I think you can indulge in most kinds of fraud without much risk at all. There certainly doesn't seem to be any particular risk attached to fraudulent audits.
Here's the secret: financial regulators and accounting authorities typically think that penny scams don't matter. They only effect gamblers, not real investors. The people who buy penny stocks can't and don't want to understand financial statements, so it doesn't matter if those statements are accurate.
Here's a perfect summary:
The stocks of many of these smaller public companies are sold as purely speculative investments. Informed investors largely ignore the financial statements ... A non-viable entity can lead to a lower audit risk assessment, all other things being equal. If an entity with $100,000 in revenues a year has a $1.5 million loss, then it is immaterial whether that loss should have been $2 million or only $1 million. The entity still isn't economically viable ...we can't spend the same kind of time studying all facets of a set of books as we would with a similar sized company which is economically viable and for which financials are closely scrutinized by informed investors.
That's by Malone & Bailey PC, of Texas, the biggest penny stock auditors in the US. The quote comes from their response to a 2005 inspection report by the PCAOB, which found numerous deficiencies in M&B audits.
The PCAOB never sanctioned M&B and never commented on this or other similar assertions in M&B's response.
In fact, M&B just expresses the view of most people concerned with guiding the markets. Systematically, pennyfraud is seen as low risk, and hardly anybody of any importance cares about it.
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