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Losses on Penny Stocks ? Investors May Be Able to Recover Damages.

Losses on Penny Stocks ? Investors May Be Able to Recover Damages. 150 150 Rex Securities Law

According to the U.S. Securities and Exchange Commission:

“The term “penny stock‘ generally refers to a security issued by a very small company that trades at less than $5 per share. Penny stocks generally are quoted over-the-counter, such as on the OTC Bulletin Board (which is a facility of FINRA) or OTC Link LLC…..”

Broker-dealers are prohibited from selling penny stocks, due to their speculative nature, unless they comply with Section 15(H) of the Securities Exchange Act of 1934 and the rules thereunder, which require the broker-dealer to:

  • approve the customer for the specific penny stock transaction in writing
  • furnish the customer a disclosure document describing the risks
  • disclose to the customer the current mark quotation, if any, for the penny stock
  • disclose to the customer the amount of compensation the firm and broker will receive on the penny stock sale

The SEC suggests that before investing in the stock of any small company, investors should read their MIcrocap Stock brochure.

Penny stocks are often thinly traded, meaning they aren’t many buyers. They are often the target of stock promoters who manipulate the market by conducting ‘pump and dump’ schemes by buying up large quantities of stock and then artificially inflating the share price though false and misleading press releases. After the price is pumped up, the promoter dumps his shares and the stock price retreats, leaving the unknowing investor with a  loss.

Brokers have a duty to make suitable recommendations to customers, taking into account their age, health, and ability to take risk. Penny stocks are generally not suitable for the elderly and retired.

If you have losses on penny stocks, you may be able to recover damages through FINRA arbitration. Call to discuss your legal options.

Rex Securities Law provides nationwide representation to investors seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.  Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Rex Securities Law

561 391 1900

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