There are a lot of good penny stocks out there, many of which are well-run, fundamentally solid corporations which will make plenty of money for their shareholders. On the other hand, there's thousands of dishonest people making very good livings by misleading investors and tricking unsuspecting people.
Whether it's falsified reports on penny stocks through an e-mail newsletter, a dishonest press release about a company, or a "great story" swirling around the rumor mill, there are always a lots of hidden motivations.
The scam artist will do whatever it takes, and often they can be very ambitious and clever about it, to drive up the price of the penny stocks. They are then selling those shares to you, at much greater prices than they paid for them. Many times they are paid by the company in question, other times they are doing it "freelance," often without the underlying penny stocks being aware that anything is going on.
Is this illegal? Most of the tactics are, yes. Do the perpetrators get caught? Usually not, but once in a while.
Of course, it's true that most people taken by a "free stock pick" scam admit (after the fact) that they were stupid to have bought into the hype. Most got involved in the penny stock picks based on greed and impatience, and certainly not on the tenants of due diligence and wisdom.
Even so, that does not make the victims deserving of their end (which is inevitably a financial loss). Nor does it excuse the unethical practices of the scam artists who could be counting their profits even now, while you read this article.
The good news is that the vast majority of the tactics perpetrated by the scam artists are easily avoidable. The following points will clear the way for you to sidestep the bad information, so you can focus on finding well-run and lucrative penny stocks.
1. don't trust what you read on message boards
2. do not believe free penny stocks websites
3. be wary of penny stocks you hear about through friends and co-workers
4. never give out your e-mail to "free newsletter sign-up" websites
5. only trust penny stocks you acquire from paid services (and even these should then get your own research and due diligence)
6. There are some good online resources that may help you learn more, such as the
Penny Stocks Guidebook and
the S.E.C., among others.
Overall, keep in mind that there are plenty of hidden motivations behind every free pick when it comes to penny stocks. Observe the 5 points above to protect yourself from any scam you may come across, so that you can focus on finding penny stocks because that are worthy of your investment dollars.
