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Penny stocks are rising, which is good news for fraudsters

It did not seem to be a very promising investment opportunity.

SpectraScience’s phone number is out of order. His website was the same. And it did not reveal the financial results from the end of 2017, when the San Diego Medical Devices Company announced its quarterly loss for the 12th time in a row.

But earlier this year, SpectraScience’s almost worthless shares, valued at one hundredth of a penny, too small to trade on a large stock exchange, came to life.

On January 27, their price doubled, more than 900 million shares were sold. The next day, more than 3.5 billion shares of the company changed hands, equal to half of the day’s trading on the New York Stock Exchange, amid social media hype. After 500% soaring at the opening of the trade, SpectraScience collapsed just as quickly.

Penny shares. The names given to more than 10,000 small companies, such as SpectraScience, have existed forever, but they are booming as small investors flood the market. And this time, social media is driving the craze. Whether sold to eliminate the boredom of an epidemic life or to make a quick profit, these dirty cheap but risky stocks are a frontier in a world where “meme stocks” like GameStop have gained overnight stars. Dogecoin turned from a joke cryptocurrency into a hot investment. և The digital work of art, known as the Intangible Sign or NFT, sold for $ 69 million.

It is part of the “mass growth” of retail, reminiscent of the 1920s, when amateurs flooded the stock market before the 1929 crash.

“It seems that the only possible historical precedent is the previous days of more and more depression,” he said.

Penny Shares occupies a low-cost neighborhood on Wall Street, a world full of fraudulent blondes, where companies that do not have a viable commodity or are in debt often sell their shares. Shares of penny traded on lightly regulated OTC or OTC markets have fewer rules about disclosing financial results or information about independent board members. Wall Street analysts usually do not follow them. Large investors do not buy them.

But there were $ 1.9 trillion in foreign exchange markets last month, up more than 2,000 percent from a year earlier, according to the financial industry regulator, a self-regulatory group that controls brokerage firms.

The lack of control over fraudulent penny stocks has long been credited to the unhealthy reputation of penny stocks. But the risk can be for anyone looking for excitement or for those who are afraid of missing out on the market boom that is creating wealth around them.

And now it’s easier than ever to access those stocks. With the exception of commissions and the spread of online trading platforms, small investors do not have to go through a traditional broker.

Because these stocks are so small in the “light” trade, a sudden surge in interest can stifle their prices. Shares have risen since the beginning of the year for companies such as Healthier Choices Management, which operates novelty stores; For a country that produces cannabis-based sunscreen; arb Garb Oil & Power, which, despite its name, has paid attention to the planned purchase of a marijuana manufacturer in one of the latest updates to its business. (Published in 2014)

“Everyone wants to get rich,” said Jordan Ward Belfort, whose memoir The Wolf of Wall Street describes in detail his corrupt life as a cheap king, complete with helicopter crashes, sunken yachts and abundant Qualudes. “And they want to get rich quick.”

Belfort, now a promotional speaker and writer based in Los Angeles, presided over Stratton Oakmont, a well-known “boiler house” that exploited pennies to catch up with non-cash retailers before 1996.

“We all want to believe in Santa Claus, the Tooth Fairy, Bernie Madoff,” he said.

Just as they did in Belfort’s heyday, kopeck stocks continue to be the basis for schemes to distribute cash to new traders. Consider one perennial rocket – the pump and the garbage.

First of all, fraudsters load superpowers on small stocks, hardly anyone can trade. After that comes the pump. They raise the stock market as people with hot prospects, spreading positive information to raise its price. Finally, there is a landfill. After the price rises, the criminal sells and leaves new buyers mostly empty bags.

“It’s just a shark pool,” said Urska Velikonyan, a law professor studying securities at the University of Orjestown Law Center. “It’s a place where the careless go to eat.”

Pension stock booms tend to bullish markets when greed is rampant. They were hot in the 1980s, when the advent of cheap long-distance telephone service led to brokerage firms specializing in high-pressure, cold-weather mining.

It was the brainchild of Blinder, Robinson & Co., led by Mayer Blinder, a prestigious New York broker. In the mid-1980s, it became the largest penny stock brokerage firm. But by 1990 it had been liquidated, and by 1992 Blinder had been convicted of racketeering and securities fraud. After announcing his conviction, he threw himself at the prosecutor, threatening to kill him.

But the technology of selling funds changes over time. Cold calls stopped, followed by fax and spam emails. Today, social media sites such as Twitter և Reddit, which promoted GameStop և other meme shares, are the preferred method of making baseless noise.

According to a civil complaint filed by the SEC this month, Andrew Fassari of Irvine, California, used his Twitter account, OCMillionaire, to raise the price of Arcis Resources, a company that has not been in business since at least 2016 but whose shares are still traded. that Fassari bought 41 million shares of the company, then posted misleading information, including a fake e-mail from the alleged CEO of the company. During the nine days of December, the stock price rose more than 4000%, reaching more than one nickel. According to the agency, Fasari’s profit was $ 929,000.

Fasari’s lawyer, Essika Munk, has stated that he denies any wrongdoing. “It turns out that Mr. Fassari was hit by controversy over GameStop, Robinhood, Reddit,” Munch said in a statement, citing Robinhood. He also noted the “lightning speed” of the SEC.

Art Hutchinson, a 50-year-old construction salesman in Fort Worth, Texas, has been betting on kopeck stocks for nearly two years – companies he calls “absolute rubbish.” And the activities he follows closely are increasingly driven by social media, he said.

“Everyone is on Twitter, whatever it is, these social media accounts, everyone is lying,” he said. “They rob people who do not study or understand it on their own.”

2017 by Thomas Reno, Professor of Finance at the Pantheon-Sorbonne University, Paris 1 One analysis analyzed millions of Twitter posts about low-priced stocks. The excitement about small stocks on Twitter led to a rise in prices, which was followed by a sudden collapse, he said, adding that the pattern was in line with pumping schemes.

Regulators seem to be taking some steps to mitigate such activity. In the weeks since the SpectraScience crash, the SEC has suspended trading in shares, citing “potentially manipulative trading activity”. It was one of nearly two dozen stock sellers who went into a similarly dubious trade by the end of February.

“We are actively monitoring suspicious commercial activity related to the promotion of social media funds. We are acting swiftly to end this trade when it is expedient to protect the public interest,” said Melissa Hodgman, Acting Director of Compulsory Enforcement at SEC. :

Current and former regulators say that the fraud of kopeck shares will continue as long as there is no buying and selling of luma shares.

“Whatever you do, do not insist on winning, because it will come back,” said Joseph Oze Goldstein, Murphy & McGonigle, a partner in financial services law firm. In the late 1980s, Goldstein led the SEC working group on a wave of counterfeiting in the kopeck stock market.

“It will not go away, because it is greed,” he said. “I do not think there will be a successful effort to end greed in this world.”

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