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Microcap fraud

Microcap fraud typically takes one of the two forms. The first – the pump and dump scheme – often involves fraudulent sales practices, including pressure tactics from boiler room operations where a small army of sales personnel could call potential investors using scrips to induce them to purchase house stocks – stocks in which the firm makes a market or has large inventory. The information conveyed to investors often is at best exaggerated and at worst completely fabricated. Increasingly these stocks are being touted on the internet by unregistered promoters. The promoters of these companies, and often company insiders, typically hold large amounts of stock and make substantial profits when the stock price rises following intense promotional efforts. Once the price rises, insider and brokers sell, realizing their profits. Second as part of pump and dump, unscrupulous brokers often employ a variety of fraudulent sales practices including bait and switch tactics, unauthorized trading, no net sales policies and churning.

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