Misleading Sales Practices

enny-Stock Broker: "The last stock we marketed went from $.10 to $.45 in six months."

Impressive Track Records
Many penny-stock brokerage firms point to past performance as a reason to do business with them. Such claims can be misleading. Even if a firm accurately states the lowest and highest prices of a previously-recommended stock, those prices may have been artificially created as the result of market manipulation. A large spread between the bid and ask price can distort the track record. As explained earlier, in some cases a stock may need to double in price for the investor to break even.

Television Programs or Reports and Internet listings
The fact that a stock is mentioned or even recommended on television or on an Internet Website is no guarantee that the investment opportunity is legitimate. Moreover, some television programs or reports are actually advertisements paid for by penny-stock brokerage firms.

Insured by the Securities Investor Protection Corporation (SIPC)
Penny-stock brokerage firms will often point to their SIPC coverage as proof of their legitimacy. But the SIPC insures only that if the firm goes bankrupt, customer-owned securities which are held by the firm will not be lost. The SIPC does not insure against loss from fraud or changes in the value of an investment.

State and Federal Licensing or Registration
The fact that a brokerage firm and its brokers are licensed or registered is not a guarantee against fraudulent practices. State and federal enforcement actions against licensed or registered penny-stock firms have increased dramatically in recent years.

Penny-Stock Broker: "You're getting in on the ground floor of the next Xerox!"

Humble Beginnings
An often-made sales pitch implies that all successful companies began by issuing penny stocks. The truth is that not all successful companies began by issuing penny stocks, and it is extremely unlikely that any given penny-stock company will become another Xerox. And, according to the North American Securities Administrators Association Report on Fraud and Abuse in the Penny Stock Industry, September 1989, a widely-quoted industry figure is that at least 70 percent of penny-stock investors end up losing money, even without taking into account the risks of fraud and abuse.