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 Raiser & Kenniff, 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 Raiser & Kenniff, 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 Raiser & Kenniff, 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.
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