SEC And FINRA Warn Against Dormant Penny Stock Fraud

The Financial Industry Regulatory Authory and the Securities Exchange Commission sent out a warning to investors that penny stocks promoted as investment opportunities may in fact be stocks of dormant companies. Known as pump-and-dump schemes, fraudsters will buy low-priced, thinly-traded shares, promote false information, then dump shares, causing the price to fall. Among the tips the agencies recommended were to research if a company was dormant, know where a stock is traded, to be wary of frequent name changes or business focus, check for reverse stock splits and note if a company has filed for bankruptcy.

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