Microcap Stocks & Pump and Dump Fraud Schemes
A microcap stock are low-priced stocked issued by small companies. The classification is based on the market capitalization of the company, which is the entire market value of the company’s outstanding shares. Market capitalization is calculated by multiplying the company’s number of outstanding shared by the share’s current price. Generally speaking, the market capitalization is included in most stock quotes.
However, in many instances there is not much public information available about microcap stocks. This makes it challenging for investors to do their due diligence before investing. A lack of public information creates an opportunity for microcap stock fraud schemes to occur. It also creates an environment where law enforcement agencies may target innocent individuals.
Investing in Microcap Stocks
Microcap stock investments are known to be riskier and less stable than investments into stocks of larger, more well-known companies. Smaller companies can be more susceptible to failure because they have fewer capital and resources to ride out natural business fluctuations and market downturns.
Since there is less information available, it is more difficult for investors to properly evaluate the investment and analyze the risk. This makes it easier for the price of microcap stocks to be manipulated.
Market Manipulation of Microcap Stocks
Market Manipulation Fraud (“Pump and Dump” fraud) is a form of stock fraud that induces investors into purchasing shares through deceptive means, which creates an increase in trading value thereby increasing the price of the stock (the “pump”). The fraud perpetrators then rapidly sell off the stock, yielding a high rate of return on investment for them, but creating losses for the other investors (the “dump”).
Microcap stocks can be subject to a market manipulation, pump and dump scheme because naturally these stocks do not have a lot of available public information and there is a low barrier to entry because the stocks are low-priced. Newer investors or unwitting investors may be drawn by the lower price point, and mistake the investment for a lower risk investment.
Further, microcap stocks are often traded “over the counter” in such markets as the OTC Bulletin Board or the Pink Sheets, not on major markets like NASDAQ. These types of security trades occur with less oversight and under fewer governmental regulations.
Defending Against Allegations of Market Manipulation Fraud
Government and law enforcement agencies work in tandem to investigate alleged fraud schemes. In the government’s zeal to prosecute these types of crimes, law enforcement may unfairly target honest people and prosecutors may be less inclined to reduce charges or offer favorable plea deals.
If you have been charged with pump and dump market manipulation, or are currently under investigation, it is essential that you contact an experienced white collar defense attorney as soon as possible.
At Ashley D. Adams, PLC our experienced attorneys will protect your rights and provide you with the best criminal defense available. As a former fraud prosecutor with the United States Attorney’s Office, Ashley D. Adams understands the government’s tactics and knows how to establish the best possible defense for your case.
Contact us or call now (480) 219-1366 for a case evaluation.
The attorneys at Ashley D. Adams, PLC handle state criminal cases throughout Arizona including the cities of Phoenix, Scottsdale, Glendale, Mesa, Tempe, Ahwatukee, Maricopa, Gilbert, Peoria, Surprise, Goodyear, Litchfield Park, Avondale, Chandler, Casa Grande, Florence, Queen Creek, Deer Valley, North Pinal and Sun City as well as those living in and around Maricopa County, Pinal County, Pima County, Yuma County and Yavapai County.
The attorneys at Ashley D. Adams, PLC handle federal criminal cases throughout the United States, including Arizona, Oklahoma, Utah, and California.