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NYC Microcap (Penny Stock) Fraud Lawyers

By Spodek Law Group | November 15, 2016
(Last Updated On: July 28, 2023)

Last Updated on: 28th July 2023, 07:31 pm

Since the over-the-counter market or microcap market encompasses of companies with low stock prices, it is relatively inexpensive and easy to acquire large volumes of these stocks. Many microcap fraud schemes involve purchasing these penny stocks, aggressively marketing them to significantly increase the price and then selling at the high price. Once the scammer dumps the stock, he or she ceases to market the stock, leaving the remaining investors with shares that fell in price.
If you are charged with microcap fraud, you could face serious criminal penalties as it is a type of market manipulation. It is important to work with an attorney who understands federal and state laws as they pertain to securities trading. It is not enough to simply fight the charges; your legal team must understand the financial markets inside and out. To speak with a New York criminal defense lawyer with a track record of representing clients in a number of securities fraud cases, contact the legal team at Spodek Law Group, PC today.
What are Pink Sheet Scams?
Microcap fraud is also known as pink sheet fraud. If a company is not listed on a major market such as the New York Stock Exchange or NASDAQ, it must make its prices public so that investors can execute trades. Therefore, pink sheets that are published daily provide bid-ask stock quotes for these companies not listed on the national exchanges. It is important to understand that pink sheets are not a stock exchange; they are merely a quotation service.
Since the NASD only regulates brokers and not the stocks that brokers trade and because pink sheets are typically below the threshold for the Securities and Exchange Commission rules and regulations, pink sheets are not very well regulated. As a result, pink sheet scams are common and may include examples such as:
– Reverse mergers. Companies listed on pink sheets can change their names. When a company is taken over, there is far less regulation than when it wants to issue new stocks. Ultimately, these pink sheet companies may end up with no assets and are often referred to as “shell companies.”
– Bogus research reports. Stock brokers create “reports” on stocks in order to make them appear as if they are from legitimate brokers. They then distribute the reports in an attempt to encourage investors to buy shares of a specific stock.
Manipulation of penny or low-value stocks on the microcap market is typically part of a “pump and dump” scheme. In other words, an individual purchases a stock for a few cents, uses aggressive marketing such as bogus reports to artificially inflate the price and then sell the stock at the higher price.
Microcap or Penny Stock Fraud Penalties
In December 2014, the Securities and Exchange Commission charged a penny stock promoter of developing a pump and dump scheme, charging the defendant with violating:
– Rule 10b-5 of the Securities Exchange Act of 1934
– Section 17(A) of the Securities Act of 1933
Both laws make it a criminal offense for to engage in transactions that deceive buyers, to employ schemes to defraud or to obtain property or money by omitting material facts or by making false statements of material facts.
Defendants may also face additional charges under other state and federal statutes, including charges of mail or wire fraud if they sent any communications via mail or wire. For this reason, it is critical that you seek legal counsel as soon as you have been charged with participating in a penny stock or microcap fraud scam.
Seek Legal Representation if You Are Accused of Microcap Fraud
Contact Spodek Law Group, PC today if you have been charged with orchestrating or participating in a microcap or penny stock fraud scheme. Criminal penalties may include large fines and jail time, and a civil case may force you to pay restitution. It is critical that you understand your rights and options before developing a defense strategy against the charges. A professional NYC criminal defense lawyer at Spodek Law Group, PC can inform you of the best way to proceed with your case in order to obtain the best possible outcome for your situation, so please contact us today for more information.

An In-Depth Look at Microcap Fraud: The Risks and Consequences

In the financial markets, few things are more devastating than falling victim to a microcap fraud scheme. Not only does it leave investors with significant losses, but it also tarnishes the reputation of the entire industry. So, it’s crucial to understand the risks and consequences associated with this type of fraudulent activity if you want to protect yourself and your investments.

Uncovering the World of Microcap Fraud

The over-the-counter (OTC) market, or microcap market, is an incredibly tempting target for fraudsters. This market mainly consists of companies with low stock prices, making it relatively inexpensive and easy to acquire large volumes of these stocks. Many microcap fraud schemes involve buying these penny stocks, aggressively marketing them to significantly inflate their prices, and selling them at a high price. Once the scammer dumps the stock, they cease marketing it, leaving the remaining investors with shares now plummeting in value.

If you are charged with microcap fraud, you could face severe criminal penalties since it is a type of market manipulation. It is crucial to work with an attorney who understands federal and state laws involving securities trading. Your legal team must have in-depth knowledge of the financial markets and have experience in representing clients in a range of securities fraud cases.

Pink Sheet Scams: A Common Microcap Fraud Tactic

Microcap fraud is sometimes called pink sheet fraud. When a company is not listed on a major market, like the New York Stock Exchange or NASDAQ, it is required to make its prices public so that investors can trade. Pink sheets (published daily) reveal bid-ask stock quotes for companies not listed on national exchanges. However, it is important to understand that pink sheets are not a stock exchange; they are merely a quotation service.

Unfortunately, pink sheet scams are common due to the lack of regulation in this area. Examples of these scams include:

Reverse Mergers Companies listed on pink sheets can change their names when taken over, resulting in less regulation compared to issuing new stocks. These companies often end up with no assets and are referred to as “shell companies.”
Bogus Research Reports Some stockbrokers create fake reports to make them appear as if they come from legitimate sources. They then distribute these reports to encourage investors to buy shares of a specific stock.

Manipulation of penny or low-value stocks in the microcap market is typically part of a “pump and dump” scheme. Scammers purchase a stock for a few cents, use aggressive marketing (such as bogus reports) to artificially inflate the price, and then sell the stock at the inflated price.

Potential Penalties for Microcap or Penny Stock Fraud

In December 2014, the Securities and Exchange Commission (SEC) charged a penny stock promoter with violating Rule 10b-5 of the Securities Exchange Act of 1934 and Section 17(A) of the Securities Act of 1933. These laws make it a criminal offense to participate in transactions that deceive buyers, defraud others, or obtain property or money by making false statements.

Defendants may also face additional charges under other state and federal statutes, including charges of mail or wire fraud if they sent any communications via mail or wire. Thus, it is critical to seek legal counsel as soon as you have been charged with participating in a penny stock or microcap fraud scam.

Seek Legal Representation if You Are Accused of Microcap Fraud

If you have been charged with orchestrating or participating in a microcap or penny stock fraud scheme, contact a legal professional immediately. Criminal penalties may include substantial fines and jail time, and a civil case may force you to pay restitution.

It is crucial to understand your rights and options before developing a defense strategy against the charges. A professional criminal defense lawyer can advise you on the best course of action to take in your case to achieve the most favorable outcome possible.

Don’t let your financial future be jeopardized by microcap fraud charges. Arm yourself with the knowledge and expertise of a skilled attorney, and fight to protect your reputation and assets.

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