Risk of Manipulation
Because many penny stocks are traded by a single brokerage firm or by a small group of firms, it is easy for them to manipulate the stock price. After the brokerage firms acquire a large number of shares at a low price, they can manipulate the stock by creating an artificial demand to drive up the price. When manipulation occurs, the stock's price may not reflect the true value of the company, but rather the artificial demand created by aggressive marketing. The price may then collapse after the broker and other persons involved in the manipulation sell their shares.
Penny-Stock Broker: "Since my firm is a 'market maker' in this stock, we can get it for you without charging you a commission."
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