U.S. securities regulators have issued a warning about penny stock scams that involve the hyping of dormant shell companies.
The U.S. Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy and the Financial Industry Regulatory Authority (FINRA) issued an alert Thursday warning investors that some penny stocks being aggressively promoted as great investment opportunities may in fact be stocks of dormant shell companies with little to no business operations.
These stocks are being used in classic pump-and-dump schemes in which fraudsters deliberately buy shares of very low-priced, thinly traded stocks and then spread misleading information to pump up the price. Once the price rises, they then dump their shares, leaving investors with worthless stocks. The investor alert highlights tips to help investors avoid scams involving dormant shells.
“Fraudsters continue to try to use dormant shell company scams to manipulate stock prices to the detriment of everyday investors,” said Lori Schock, director of the SEC’s Office of Investor Education and Advocacy. “Before investing in any company, investors should always remember to check out the company thoroughly.”
Gerri Walsh, FINRA’s senior vice president for investor education, added, “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. 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.”