The SEC is again moving aggressively against “pump and dump” market manipulators of microcap or “penny” stocks.
According to the Washington Post, the agency has opened 5-6 new enforcement cases a month, above last years’ rate, and now has full time staffers focused on this area of abuse.
The scam has promoters hyping the stock on internet chat rooms and using boiler room phone banks to get, typically, older investors to run up the price in the over-the-counter market by creating false demand. Once up, the promoters, who own a large number of shares, sell fast, taking profits and causing the price to drop.
The fear among securities regulators is that there is not much difference between the penny stock market and the soon-to-appear secondary market for crowd funded shares. Since there is no established market for crowd funded shares, the abuse will be even harder to detect.