Websites and emails claim you can get big returns with little investment. But is this really true?
“They are considered very risky stocks,” says Virginia Columbo, a postal inspector.
As the stock market rose to all-time highs, investors have been buying shares of these small companies at a record pace.
“The risk with microcap stocks is they do NOT have to report to the SEC which allows room for fraud and have people come in and pretend they are more than they are,” says Columbo.
Regulators have been tracking this activity and have a warning for consumers: Beware of many of the tactics being used to pump up penny stocks.
“You have a promoter behind the scenes who probably stands to benefit from this or own a share of this stock,” says Columbo.
Those so-called promoters can blast spam out saying 'This is the 'deal of the century.’ Or the company is about to make a 'major announcement' we recommend you 'buy this as soon as possible.'
“The promoters and the scammers that have the financial benefits to sell it - will dump. the stock will drop and all of the new investors who bought all this stock will be out all of the money they just invested and it`s worth nothing essentially,” says Columbo.
Postal inspectors say investors should be skeptical of email tips. Do your own homework before investing in a penny stock.
“You need to be aware,” says Columbo. “And go on the security scam website.”
Also, if a company is not registered with the SEC, postal inspectors recommend calling the office in your state that regulates financial investments to find out more about the company. If you still can`t find information-- proceed with great caution.