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
In the News
- SEC Charges Microcap Promoter With Illegally Selling Penny Stock Shares (June 23, 2015)
- SEC Charges New York Lawyer and Two Promoters With Market Manipulation (May 26, 2015)
- Daniel P. McKelvey, et al. (April 16, 2015)
- SEC Halts Microcap Scheme in South Florida (April 9, 2015)
- SEC Files Emergency Action Against Father and Son Behind Pump and Dump Scheme, Obtains Asset Freeze (March 12, 2015)
- Default Judgment Entered Against Securities Lawyer for Forging Attorney Opinion Letters for Microcap Stocks (March 11, 2015)
- SEC Suspends Trading in 128 Dormant Shell Companies to Put Them Out of Reach of Microcap Fraudsters (March 2, 2015)
- SEC Obtains Final Judgment Against CEO in San Francisco-Based Penny Stock Company Pump and Dump Scheme (February 26, 2015)
- SEC Settles Civil Action Against Penny Stock Company, Its Former Chief Executive Officer, and Two Penny Stock Financiers for Their Roles in Illegal Unregistered Stock Distributions and Will Continue to Litigate with a Third Penny Stock Financier (February 24, 2015)
- Caledonian Bank Ltd., et al. (February 11, 2015)
- SEC Charges Oppenheimer with Securities Law Violations Related to Improper Penny Stock Sales (January 27, 2015)
- SEC Announces Charges Against Attorneys and Auditors in Microcap Scheme Involving Purported Mining Companies (January 15, 2015)
- SEC Suspends Trading in Companies Touting Operations Related to Prevention or Treatment of Ebola (November 20, 2014)
- SEC Charges Three Penny Stock Promoters Behind Pump-and-Dump Schemes (November 17, 2014)
- SEC Charges San Francisco-Based Penny Stock Company CEO for Defrauding Investors in Pump-and-Dump Scheme (November 17, 2014)
- SEC Charges California Lawyer and Two Massachusetts Men Behind Scheme to Manipulate Stock of Sports Ticket Broker (November 6, 2014)
- SEC and FINRA Warn Investors About Penny Stock Scams Hyping Dormant Shell Companies (October 30, 2014)
- In the Matter of Registrar and Transfer Company and Thomas L. Montrone (October 31, 2014)
- Judgment Against Former CEO Orders Payment of Over $450,000 in Case Involving Scheme to Manipulate Company's Stock (October 10, 2014)
- SEC Charges Current and Former E*TRADE Subsidiaries With Improperly Selling Penny Stocks Through Unregistered Offerings (October 9, 2014)
- News Archive List
Click here for the PDF.
- 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.
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.