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Stock Scams Rip Off Investors Searching for Deals

Phony brokers selling penny shares target seniors

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Harry Campbell

Remember penny stock scams? The investment brokers who ripped off thousands of hapless investors in the 1990s by selling them worthless stocks are still around. And experts say they are more cunning now than ever.

Though regulators barred scores of penny stockbrokers from the securities industry and dozens were imprisoned, fraudulent stock sellers are still at work — and they frequently target seniors because of their accumulated wealth. “It's the Willy Sutton principle. Why did he rob banks? ‘That's where the money is,’ “ says Lori J. Schock, director of investor education and advocacy at the Securities and Exchange Commission (SEC). About 30 percent of microcap fraud victims are older than 65, notes Terrence Bohan, vice president of investigations at industry regulator FINRA. (A microcap company has very little capitalization, or value.)

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The objective of shady sellers is the same as always — to get you to buy stakes in these companies by convincing you their value is about to soar. But the stocks often have virtually no value, and there is no active trading market for some of the shares. Sometimes there's a real company behind the stocks, though it is small and of uncertain future; other times, the company is just a shell created solely to sell bogus shares.

Warning signs of a penny stock scam

Online resources:

Go to or to find out whether the firm and broker have ever been registered and whether they've been expelled or disciplined.

If they're not in the database, they shouldn't be selling to you, Schock says.

Penny stockbrokers continue to reach out to targets by cold-calling. Many phone from overseas, using technology to mask their location. How do you keep yourself from becoming a target?

    1. Beware of unregistered brokers and guaranteed returns. These are the two most common tip-offs of a fraudulent investment scheme. Few legitimate investments offer a guaranteed profit. And brokers or firms not registered with FINRA are waving a red flag.
    2. Be skeptical about “hot industry” pitches. Scammers latch on to the latest trend. Be wary of pitches involving sectors in the news such as coronavirus or cannabis or blockchain.
    3. Big plans are often fantasies. Stock hustlers may describe nonexistent contracts or partnerships with firms that are household names, or patents that don't exist. You can do a Google search for the SEC's EDGAR system, which will give you access to the company's financial reports.
    4. Watch out for the suspicious soft sell. Brokers who don't push you to buy right away might still be scammers. Many penny stockbrokers will spend weeks or months trying to win your trust. “They may be in it for the long game,” Shock explains, going for the hard sell after establishing a relationship.
    5. Listings aren't a guarantee. Though most penny stock scams involve companies not included on a legitimate exchange, those listed on NASDAQ or the New York Stock Exchange can still be part of a scheme. Bohan says that regulators “have seen a dramatic uptick in exchange-traded microcap fraud over the past five to six years.”
    6. Don't be fooled by variations on the cold call. The phone is not the only way that shady sellers reach you. Pitches come via spam emails, direct mail, newsletters and even radio or TV ads. Bohan observes that when people research companies on Facebook and Google, they sometimes encounter scammers via sponsored links.
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    Scam artists take as much as half the money you send them, as commissions for selling you stocks that often prove worthless. That's an awfully good incentive to rip you off.

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