How to spot a microcap scam?
On Thursday, July 22, the United States Securities and Exchange Commission (SEC) released an emergency action. This is to charge a Californian man who allegedly runs a stock exchange scheme. His tactic mainly sells microcap stocks to investors. Here’s how you can identify a real stock exchange from a microcap stock fraud scheme.
Millionaire stock schemer arrested
Charlie Abujudeh, a California man, was recently charged with fraudulently selling several microcap companies’ stock. According to SEC’s investigation, Abujudeh worked with groups of people to accomplish the alleged scheme.
They started the operation between August 2019 and September 2020. However, this year was only the time when the final arrest warrant was concluded. SEC revealed that Abujudeh’s associates made misleading calls to “unsuspecting retail investors.” They reportedly hype up their owned stocks in order to get the clients to give their money.
To make sure that the stock will increase, Abujudeh will reportedly control nearly all of the float, or stock available for public trading, for each of the companies that he promoted. This includes Scepter Holdings, Odyssey Group International, and CannaPharamRX Inc.
Once the interested client gives their money, the schemers will dump all of it. As a result, the clients’ money will no longer be around in the market.
“This control enabled him to manipulate the market for these securities using a variety of deceptive tactics, most often through deceptive promotional campaigns that he funded and controlled,” the SEC said.
Over $9 million were reportedly generated by Abujudeh’s team from the said scheme.
No updates on the arrest
As of now, the SEC has not yet released any updates on the arrest of Abujudeh or his associates. However, Paul Levenson, Director of the SEC’s Boston Regional Office, said that investors should be wary of their money.
“All investors should educate themselves before investing and be particularly cautious when faced with unsolicited calls, high-pressure sales tactics, and promotional email blasts,” he added.
How to spot microcap stock fraud?
Abujudeh’s scheme is legally called microcap stock fraud. Microcap companies have the lowest market capitalizations. According to Investopedia, identifying microcap stocks can be easy to point out.
However, there are still some instances where it is hard to pinpoint. If you want to avoid microcap risks from the stock market, here are some of the things you need to check out.
Too good to be true
In any investment program, advice that is too good to be true is one of the clear things to know whether the investment is real or not. The federal website said heavily-promoted stocks or products could mean that they are not true.
Changes in company names
One clear sign that it is a microcap stock company is when it frequently changes its company name. This means, the company might not be real in the first place or it is involved in a pending case.
Unexplained increase in value
The last thing to check on microcap stock shares is the unexplained increase in its value. Sometimes, schemers always say the stocks increase over time. However, they cannot be explained.