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Concept
Microcap stock fraud
Summary
Microcap stock fraud is a form of securities fraud involving stocks of "microcap" companies, generally defined in the United States as those with a market capitalization of under 5 per share, is not listed on a national exchange, and fails to meet other specific criteria.
Microcap stock fraud generally takes place among stocks traded on the OTC Bulletin Board and the Pink Sheets Electronic Quotation Service, stocks which usually do not meet the requirements to be listed on the stock exchanges. Some fraud occurs among stocks traded on the NASDAQ Small Cap Market, now called the NASDAQ Capital Market.
Microcap fraud encompasses several types of investor fraud:
Pump and dump schemes, involving use of false or misleading statements to hype stocks, which are "dumped" on the public at inflated prices. Such schemes involve telemarketing and Internet fraud.
Chop stocks, which are stocks purchased for pennies and sold for dollars, providing both brokers and stock promoters massive profits. Brokers are often paid "under the table" undisclosed payoffs to sell such stocks.
Dump and dilute schemes, where companies repeatedly issue shares for no reason other than taking investors' money away. Companies using this kind of scheme tend to periodically reverse-split the stock.
Other unscrupulous brokerage practices, including "bait-and-switch", unauthorized trading, and "no net sales" policies in which customers are prohibited or discouraged from selling stocks.
Pump and dump
Many penny stocks, particularly those that trade for fractions of a cent, are thinly traded. They can become the target of stock promoters and manipulators. These manipulators first purchase large quantities of stock, then drive up the share price through false and misleading positive statements; they then sell their shares at a large profit. This is referred to as a "pump and dump" scheme.
Official source
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Related publications (2)
The Anatomy of a Cryptocurrency Pump-and-Dump Scheme
While pump-and-dump schemes have attracted the attention of cryptocurrency observers and regulators alike, this paper represents the first detailed empirical query of pump-and-dump activities in cryptocurrency markets. We present a case study of a recent p ...
USENIX ASSOC2019Related concepts (2)
Securities fraud
Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information. The setups are generally made to result in monetary gain for the deceivers, and generally result in unfair monetary losses for the investors. They are generally violating securities laws. Securities fraud can also include outright theft from investors (embezzlement by stockbrokers), stock manipulation, misstatements on a public company's financial reports, and lying to corporate auditors.
Money laundering
Money laundering is the process of illegally concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions with varying definitions. It is usually a key operation of organized crime. In United States law, money laundering is the practice of engaging in financial transactions to conceal the identity, source, or destination of illegally gained money.