Spotlight on Microcap Fraud
The over-the-counter (OTC) market for securities, often referred to the microcap market, is designed for and comprised of companies with small amounts of assets and low stock prices. More than 10,000 companies have shares that trade on the OTC market’s two inter-dealer quotation systems: the OTC Bulletin Board (OTCBB) and OTC Markets Group, Inc. (f/k/a Pink Sheets). While companies that trade their stocks on major exchanges undergo a formal application process and must meet minimum listing standards, companies quoted on the OTCBB or the OTC Markets do not have to apply for listing or meet any minimum financial standards.
Frequently Asked Questions
Watch out for these “Red Flags” when investing in Microcap Stock
- SEC Trading Suspensions
- Assets are Large but Revenues are Small
- Odd Items in the Footnotes of Financial Statements
- Unusual Auditing Issues
- Insiders Own Large Amounts of Stock
What if I Want to Invest in Microcap Stocks?
To invest wisely and avoid investment scams, research each investment opportunity thoroughly and ask questions. These simple steps can make the difference between profits and losses:
- 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.
- Make sure the broker and his or her firm are registered with the SEC and licensed to do business in your state. And ask your state securities regulator whether the broker and the firm have ever been disciplined or have complaints against them.
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- These data are based on analysis by the Division of Economic and Risk Analysis (DERA) of over 4,000 litigation releases over 2003 to 2012 (available at http://www.sec.gov/litigation/litreleases.shtml).
- The x-axis depicts the first year of the alleged violation period.
- Groups are based on the primary classification of the alleged violation.
- This chart includes alleged violations committed by parties unrelated to the OTC-traded issuer.
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Orchestrator of Microcap Fraud Scheme Barred from Penny Stock Offerings and Ordered to Pay $80,000 Penalty
October 23, 2018
SEC Halts Microcap Fraud Scheme Orchestrated Through International Accounts
October 3, 2018
SEC Charges Company Insider with Multiple Frauds
September 28, 2018
SEC Charges Florida Microcap Company, CEO and Consultant with Fraud
September 28, 2018
SEC Obtains Consent Judgment Against CEO in Penny Stock Fraud Scheme
September 27, 2018
SEC Charges U.K. Brokerage Firm, Investment Manager, CEO, and Others for Manipulative Trading in U.S. Microcap Stocks
March 16, 2018
Promoter in Securities Kickback Scheme Barred from Penny Stock Offerings
March 5, 2018
SEC Charges Transfer Agent and Its Principal with Fraud for Misappropriating Client Funds
January 24, 2018
SEC Charges Florida Penny Stock Operators With Defrauding Elderly Investors in Push to Crack Down on Repeat Offenders
January 8, 2018
Litigation Releases and News Archive List