Intrigued at the possibility of investing in a new or small company, or lured by low-entry investment opportunities?  While these products can be great investments, they’re also a popular target for scammers.

What Are Microcap Stocks?
A microcap stock is a stock in a company with low or “micro” capitalizations. Some microcap stocks are called nanocaps or penny stocks.  Most microcap stocks are traded in the “over-the-counter” (OTC) market, rather than on a national securities exchange such as the New York Stock Exchange or NASDAQ. 

What Makes Microcap Stocks Popular?
Stocks tend to be low priced and trade in low volumes, making them relatively attractive and “affordable” investments.  These stocks are popular with both new and experienced investors alike and, although risky, some can become quite profitable.  Certainly, many have done well investing in microcaps.

Why Are Microcap Stocks Targets of Investment and Securities Fraud?

While microcap stocks can be good investments, they’re often also ripe for investment fraud. Some of these companies are still in the development stage with no assets, operations or revenues to record, and thus, little or no proven success.  In general, information on microcap companies can be extremely hard to find, even non-existent. More problematic, is how difficult it is to confirm the accuracy of the information you do find.  Scammers can use this to their advantage, spreading false or inaccurate information to make the stock appear a worthy investment.

What Should I Watch Out For?
If you’re considering a microcap stock, here are a few potential red flags noted by the Securities and Exchange Commission (SEC ):

  • If the offer is “to good to be true” it most likely is
  • If you’re pressed into buying “right now”
  • If someone claims to have “insider” information on a hot new company
  • Tips found on chat boards, unsolicited phone calls and emails
  • Even press releases and articles on reputable financial sites should be thoroughly investigated, as there’s no guarantee they’ve been reviewed and vetted by the staff

Have I Been A Victim of Microcap Fraud?
If you’re concerned you’ve faced financial losses or fraud due to stockbroker malpractice involving microcap, nanocap or penny stocks, contact our Michigan securities law firm today at: 313-962-7777. We offer free case evaluations.