Are you familiar with the phrase, “If it sounds too good to be true, it probably is?”
If not, allow me to introduce you to the perilous penny stock.
The penny stock is a popular choice among con artists looking to take advantage of naive investors.
Like every get-rich-quick scheme in existence, penny stock cons usually involves a group of individuals being sold a dream of minimal effort and investment making them virtual millionaires overnight.
Instead of getting the millions they were promised, the hapless persons often find themselves broke and wondering what went wrong.
Just ask 65-year-old Paul Allen.
The Boston, Mass. native and retiree took a chance on Vapor Hub International after a bunch of inbox spam informed him that this was something he just had to get in on.
After putting 80 percent of his investment into Vapor Hub International, he quickly lost it all.
Penny stocks often take the form of “pump and dump” schemes, where investors are encouraged to flood stocks with millions, only to see shares plummet as con artists collect the money and run.
This is what many consider to be behind a mysterious company known as Cynk Technology.
How else can you explain a business with only one employee and no revenue to speak of obtaining a market value of six billion dollars?
CYNK Technology up nearly 25,000% since June 17. pic.twitter.com/TB4SwDeTVJ
— DA Market Securities (@itradeph) July 15, 2014
The shady company started off trading at just six cents before its value inexplicably ballooned to $22 per share.
Sensing something was amiss, the Securities and Exchange Commission suspending trading of Cynk’s stock on July 11th.
It’s no surprise that when the suspension was lifted a couple of weeks later, the value of the stock plummeted by 96 percent.
Law enforcement officials are moving to do something about penny stock con artists before victims like Allen get taken advantage of.
— Globe Business News (@GlobeBiz) September 25, 2014
It was recently reported that the Manhattan District Attorney's office moved to prosecute three individuals who were attempting to use penny stocks to make millions through fraudulent means.
Stock promoters Anthony Thompson, Eric Van Nguyen and Jay Fung hoped to achieve this by sending out various press releases and emails promoting certain companies. These companies happened to be owned by the trio and this information was not shared with potential investors.
According to a statement by District Attorney Cy Vance, “These individuals, as alleged in the indictment, are charged with using their positions as stock promoters and company insiders to inflate their own profits through fraud and deceit.”
Vance also said that the DA office would “not allow this kind of manipulation to occur” in American markets.
Even if these individuals are busted, there are plenty more scammers waiting to take their place.
As such, it’s up to you to educate yourself about making sensible investments and avoid the poverty trap typically associated with penny stocks.