May 11, 2011
Information is the investor's best tool when it comes to investing wisely. But accurate information about the smallest of companies can be extremely difficult to find. Because many of these very small companies do not register their securities or file financial reports with the Securities and Exchange Commission (SEC), it is nearly impossible for investors to get the facts about the company's management, products, services, and finances.
Often, the lack of reliable, readily available, current information also opens the door to fraud. It is easier for the unscrupulous to spread false information and to manipulate a stock's price when accurate information about the company is scarce. The fact that a company files reports with the SEC does not make the company a "good" investment or immune to fraud. Conversely, the fact that a company does not file reports with the SEC is not necessarily a red flag, as many such companies are honest businesses (with real products or services) that are exempt from registration. The critical difference is the extra measure of risk of investing in a company about which little or no information is publicly available. If you have been asked to invest in a company but cannot find any record that the company has registered its securities with the SEC or your state, or that it is exempt from registration, the investment opportunity may be a scam. Call or write your state's securities regulator immediately with all the details. You can also file a complaint using the SEC's online Complaint Center.