Penny stocks are ripe for abuse: Just watch the popular Hollywood hit, "Wolf of Wall Street." This month the Securities and Exchange Commission, or SEC, charged four individuals with manipulating the stocks of microcap companies, two of which are connected with the marijuana business.
© Blaine Harrington III/Corbis
All four of the alleged scammers run stock promotion companies -- businesses that alert their clients and subscribers to potential hot investments. The four bought up shares of lightly traded penny stocks and manipulated the market to make it appear as though the stocks were being actively traded. After hyping the companies through email marketing, the quartet dumped their shares and earned $2.5 million for their nefarious efforts.
Here's a good rule of thumb: Spam emails bearing news about stocks should be ignored.
GrowLife Inc. and Hemp Inc. were the marijuana-related companies in their scheme. The scammers also targeted Riverdale Oil and Gas Corp. and three other penny stocks: ISM International, Allied Products Corp. and Aden Solutions.
Last year FINRA issued a warning about scams in pot stocks.
What do you think of penny stocks in general? An opportunity to swing for the fences or to lose your shirt?
Get more Investing News with our free weekly newsletter.
Follow me on Twitter @SheynaSteiner.
Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.