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Penny Stock Risks – Caveat Emptor
Legal Interview | 2010/09/22 06:11
The securities industry has tough rules when it comes to brokers soliciting the purchase of “penny stocks.”nbsp; Typically a stock is considered a “penny stock” when it trades for less than $5 a share and it does not trade on a major exchange (e.g., New York Stock Exchange or NASDAQ).nbsp; Penny stocks normally trade on the OTC Bulletin Board (OTCBB) or Pink Sheets.nbsp;

Aside from the requirements, among others, that soliciting brokers have to supply investors with a document disclosing the risks associated with penny stocks and wait, in some cases, 2 days after providing the disclosure document before placing your first order (i.e., “speed bump”), there are actual disclosure ratings assigned to each penny stock.nbsp;

A market center called a href=http://www.otcmarkets.com/ target=_blankfont style=background-color: #fefceb color=#6a4b39OTC Markets/font/a places penny stocks into different a href=http://www.otcmarkets.com/otcguide/investors_market_tiers.jsp target=_blankfont style=background-color: #fefceb color=#6a4b39disclosure categories/font/a based on things from whether or not the company is current on its financial reporting to whether the stock is the subject of fraud or stock promotion.nbsp; Your broker and his brokerage firm and clearing firm have access to this information and so do you.nbsp; There are over 13,000 stocks having either the label of “Caveat Emptor,” “Grey Market,” or “Pink Sheets No Information.”nbsp; Have you bought a penny stock recommended by a stock broker that has one of those labels?nbsp; Did your broker disclose that to you?


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