Canadian Penny Stock Scams

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Common Scams

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Penny Stocks are potentially a way to make a lot of money, but for most, they are unfortunately a place to lose money. Oftentimes, they lose money due to a scam.

This page tries to detail how some of the scams work and what to be warry of when looking into penny stocks.

The Pump & Dump is one of the most common types of penny stocks scams. Pumper and Dumpers look for a small nano cap stock that is thinly traded (low volume), with low insider ownership.

Over the course of weeks months, or years, they accumulate a large holding of the stock in question. These scammers will then use boiler rooms to directly telephone, email, IM or mail unsuspecting investors with spammy, too-good to be true sounding investment opportunities.

When unfortunates from around the world start to invest in the stock, the price will start to climb rapidly. As the price climbs, more unfortunates will also invest. All the while the pump and dumpers are selling the shares that they have accumulated. Eventually, once the marketing has stopped, the final "greater fool" will purchase shares in the company and then someone will sell and the price will rapidly drop.

Many individuals have had large sums of money wiped out in such scams and are often left destitute. One thing to bear in mind is that pump and dump scammers will usually find penny stocks that have an easy to make up story in a hot sector of the economy, eg. the internet, gold mining, defence or some other "sexy" part of the market.

Pump and Dump Scams

The best way to watch out for these is common sense. If this is such a great deal, then why are they sending it anonymously to your inbox unrequested? If the company was such a great investment, they would be able to attract private equity to the table, and would not need to inform the uneducated financial masses.