Why are manipulated stocks so risky?

Questions: Why are manipulated stocks so risky?

https://myinvestingnotes.blogspot.com/search?q=manipulators

14.1.2010

Here are the main points why manipulated stocks are so risky.

List of Main Points

1. Market Structure Facilitates Manipulation: Bursa Malaysia has an abnormally high number of listed companies for its small market size and economy, creating a pool of low-value, illiquid stocks that are easy targets.

2. Shifted Motivation for Manipulation: After the 1997-98 crisis, banks became wary of accepting inflated stocks as loan collateral. The primary goal of manipulation is now to directly profit from pumping and dumping shares on retail investors.

3. The Manipulation Playbook ("Pump and Dump"):

   • Accumulation & Cornering: Manipulators buy up large stakes at very low prices.

   • Artificial Inflation: They use tactics like wash trading (fake accounts), ambitious announcements, and large fake buy orders to create false volume and demand, driving the price up.

   • Enticing Punters: The rising price and fabricated activity lure in speculative retail investors ("punters").

   • The Dump: While maintaining the illusion of demand, manipulators secretly sell their holdings at inflated prices. Eventually, they dump all remaining shares, causing a crash.

4. Extreme Risk for Investors:

   • Predictability: It's nearly impossible for outsiders to know when the dump will happen.

   • Crash, Not Correction: The decline is typically sudden and severe ("crashes").

   • Asymmetrical Outcome: Investors risk losing everything ("lose a bomb") on a single failed exit, while gains from timely exits are speculative and risky.

5. Fundamental Worthlessness of Targets: In Malaysia, many manipulated stocks are from fundamentally weak companies on the "brink of bankruptcy" with little chance of a real turnaround, making them pure gambling vehicles.

6. Author's Advice & Disclaimer:

   • Strong Warning: Trading such stocks is compared unfavorably to casino gambling.

   • Alternative Suggestion: For those drawn to speculation, exploring speculative stocks on the ASX (Australian Securities Exchange) is presented as a potentially better option, as many are exploration companies with genuine, if slim, prospects.

   • Recommended Approach: The only safe way in Malaysia is fundamental, long-term investing.

   • Legal Disclaimer: The author states they are not a licensed adviser and shifts responsibility to the reader and their licensed remisier (broker).

Discussion

The text provides a coherent and critical analysis of stock manipulation in the Malaysian context. It effectively traces the evolution from collateral-based fraud in the 1990s to the modern retail-focused "pump and dump" scheme. The core argument is that the risk is systemic and exacerbated by local market conditions.

The discussion highlights the asymmetry of information and control. Manipulators control the supply, information flow (via announcements), and even the appearance of demand. Retail investors are at a severe disadvantage, participating in a rigged game where the exit doors are controlled by the manipulators.

The comparison to a casino is apt but with a crucial distinction: in a casino, the odds are mathematically known and regulated. In a manipulated stock, the "house" (the manipulator) not only controls the odds but can also change the rules of the game mid-play.

The author's perspective is notably cynical about the quality of speculative Malaysian companies and suggests a geographical arbitrage—speculating in Australian resource explorers is framed as having more merit due to the nature of their business (seeking a genuine discovery) compared to the "worthless" Malaysian counterparts.

Summary

Manipulated stocks are exceptionally risky because they represent a controlled deception rather than a genuine investment. In markets like Malaysia, where many small, low-quality companies are listed, manipulators can easily corner a stock. They artificially inflate its price through fake volume and misleading news, creating a false narrative of success to lure speculative retail investors. Once enough outsiders buy in, the manipulators dump their shares, collapsing the price. The retail investor faces a near-impossible task of timing their exit before this crash, often leading to catastrophic losses. The entire process is characterized by a fundamental disconnect between the stock's price and its underlying value, making it a form of financial gambling where the odds are deliberately and opaquely stacked against the public participant. The only advised antidote is to avoid such schemes entirely and stick to fundamental investing.

Hidden hands behind penny stock surge

Hidden hands behind penny stock surge (The Edge) 2020

https://myinvestingnotes.blogspot.com/2020/10/hidden-hands-behind-penny-stock-surge.html

Based on a 2020 special report by The Edge Malaysia, a group of individuals, suspected of acting together, were linked to over 20 publicly traded companies on Bursa Malaysia. These companies, often penny stocks with poor fundamentals, experienced unexplained, volatile price surges.

The "Irrational Exuberance" of Selected Stocks

The report highlighted extraordinary, unexplained gains in several loss-making companies over a short period in 2020, which were disconnected from their financial performance:

• Saudee Group Bhd: Gained over 300% despite significant net losses.

• Anzo Holdings Bhd: Surged over 1,000% in about two months.

• PDZ Holdings Bhd: A financially troubled shipping company gained over 500%.

• XOX Bhd: Gained over 430% in six weeks.

Subsequent Developments and Reactions

The situation continued to evolve after the original report:

• Official Scrutiny: In 2023, authorities, including the Inland Revenue Board and Malaysian Anti-Corruption Commission, raided offices in Menara Lien Hoe to investigate allegations of stock price manipulation and money laundering. The Securities Commission Malaysia (SC) was also said to have the group "on its radar".

• Legal Action Against the Media: In 2022, editors from The Edge were charged with criminal defamation by businessman Datuk Kua over the articles. The Edge stated the articles were based on public data and argued the charges were an inappropriate use of public resources for a civil matter.

• Market Activity: The volatile trading of the identified penny stocks subsided after the 2021 article and regulatory warnings, but not before many investors suffered losses.

Understanding Penny Stock Manipulation

The alleged activities align with classic market manipulation schemes:

• Pump-and-Dump: Fraudsters artificially inflate ("pump") a stock's price through coordinated buying and misinformation, then sell ("dump") their holdings at the peak, leaving other investors with worthless shares.

• Asset Shuffling & Cash Calls: The group was accused of passing assets between linked companies and repeatedly raising capital through share placements, potentially to move funds or enrich certain parties.

Bursa Malaysia striked off Securities dealer (12.8.2014). How easy was it to manipulate so many counters at one go?

 

Bursa Malaysia reprimands, strikes off TA Securities dealer

https://myinvestingnotes.blogspot.com/search?q=manipulator

http://www.thesundaily.my/news/1137953

12 August 2014 

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How easy was it to manipulate so many counters at one go?

That's a question that cuts to the heart of the vulnerability exposed in this case. Based on the details, it appears it was surprisingly easy for Oh  to manipulate multiple counters simultaneously, due to a "perfect storm" of factors that existed at the time.

Here’s why it was likely easier than one might think:

1. Nature of the Counters: Small, Illiquid Stocks

The six counters (Biosis, Metronic, Ariantec, Luster, Harvest Court, Naim Indah) were almost certainly small-cap or micro-cap stocks with low liquidity (thin trading volume).

• Why this matters: In an illiquid stock, a relatively small amount of money can move the price significantly. Placing a few large orders can set the price, and creating even a modest volume of artificial trades can make it look "active." Manipulating a highly liquid blue-chip stock like Maybank would require billions and would be nearly impossible for one dealer.

2. The Mechanism: Married Trades and Cross-Trades

Oh’s primary tools—Married DBTs and matched cross-trades—are executed within the same brokerage (TA Securities).

• Internal Matching: He was essentially moving shares between his own pool of client accounts. This doesn't require finding an independent, outside buyer or seller on the open market. The trade is pre-arranged and then executed on the exchange, creating a legitimate-looking record but with no genuine transfer of risk or ownership intent.

• Control Over Both Sides: By having authority or influence over the accounts involved (including family members), he controlled both the buy and sell orders. This made execution straightforward and predictable.

3. Lack of Effective Real-Time Surveillance (Circa 2014)

While Bursa Malaysia had surveillance systems, the sophistication in 2014 might not have been as advanced as today in detecting complex, multi-account relationship patterns in real-time.

• Detection was likely post-trade: The manipulation occurred "over a period of several months," suggesting it was detected by analyzing historical patterns and linking accounts afterward, not stopped immediately.

4. Exploiting the Commissioned Dealer Role

As a commissioned dealer, his income depended on generating trading volume. This provided both motive and a veil.

• Volume as Cover: High volume, even if artificial, could be rationalized as being "for the clients" and generating commissions for the firm. It didn't necessarily raise immediate red flags internally if it was profitable for the branch.

• Client Trust/Family Links: Using accounts of family members and compliant clients removed a major obstacle—client suspicion. The clients in on the scheme were beneficiaries; others may have trusted him blindly.

5. The "One-to-Many" Model

Oh didn’t need to manipulate each stock in isolation with a separate scheme. The case describes a hub-and-spoke model:

• Oh was the hub. He used the same pool of interconnected client accounts to execute similar manipulative patterns across different counters. The technique (married DBTs, cross-trades) was identical; only the stock ticker changed. Once the method was established, applying it to a sixth stock was just incremental work.

6. Potential Lack of Rigorous Internal Controls

The fact that this went on for months raises questions about TA Securities' internal compliance and supervisory oversight at the time.

• Dealer Discretion: He may have had excessive discretion to execute complex off-market (DBT) transactions without immediate supervisory approval.

• Focus on Revenue vs. Risk: A high-commission producer might have been subject to less scrutiny.

Conclusion: It Was Relatively Easy Within That Specific Ecosystem

It was not easy in the sense of being simple or risk-free, but it was highly feasible given the confluence of:

• The Target: Illiquid, low-priced stocks.

• The Method: Internal trades he fully controlled.

• The Position: Direct access to the trading system as a dealer.

• The Motive: Commission and client favor.

• The Weakness: Likely lagging surveillance on relationship-based trading and inadequate internal controls.

In today's environment, such a scheme would be significantly harder to sustain for months due to:

• Advanced AI-driven surveillance that maps relationships and detects manipulative patterns in real-time.

• Tighter regulations on DBTs and conflicts of interest.

• Stronger internal compliance mandates at brokerages.

The case serves as a historical lesson on why regulatory technology (RegTech) and a strong compliance culture are essential to close these systemic loopholes.

Detecting Frauds. When to Sell. Avoiding Value Traps.

 

Filter out noise and focus on information that are important for investing.

VALUE TRAPS

How do you decide whether it is a value trap or not?

Value traps are statistically very cheap and very alluring.

First question to ask:  “Why is God so kind on you that you are the only one who has this tremendous insight that this stock is cheap and all the other people who are very active, smart and intelligent in the market are ignoring this company?”

Is there an embedded growth optionality in the company? Can the company have a growth phase? Can the company come out with some new product offering which can introduce growth? 

This is a dynamic exercise.  You will need to revisit the hypothesis every now and again, at intervals. 

Two characteristics of value traps are:

• (1)  They typically don’t tend to grow more than the nominal GDP
• (2)  They cannot reinvest their cash flow.

So the question you should ask is what is the catalyst which will change this and allow them to reinvest the capital which they are throwing off?  In its absence, you have a classic example where the company had great cash flows and no catalyst.  

Your sole focus of whether to participate in a seemingly value trap could be you calling out the catalyst that will catapult it out of this situation.

Hidden hands behind penny stock surge (The Edge)

Special Report: Hidden hands behind penny stock surge 

The Edge Malaysia September 30, 2020

This article first appeared in The Edge Malaysia Weekly, on September 21, 2020 - September 27, 2020.

ASTUTE market observers would have noticed on the local bourse a group of individuals, supposedly acting in concert, who have amassed shares in more than 20 publicly traded companies. These companies — linked via shareholding and directorships — are often on the most actively traded list, with huge, fluctuating share prices. “It (the companies) is all linked to the same person; usually, the most actively traded list on a daily basis involves these counters,” one source says when asked which are the companies that are linked. 

However, research by The Edge (see chart on the 21 companies) indicates that while other businessmen have surfaced, the individual said to be in control of the group of companies is not officially onboard or present as a shareholder.   “This [his not surfacing] could be due to several issues,” another source adds. 

It is also telling that nine of the 21 companies mentioned — 

• AT Systemization Bhd, 
• MLabs Systems Bhd, 
• Focus Dynamics Group Bhd, 
• mTouche Technology Bhd, 
• Fintec Global Bhd, 
• XOX Bhd, 
• M3Technologies (Asia) Bhd and 
• NetX Holdings Bhd 

— have their principal place of business, head office, business office or corporate office in Menara Lien Hoe, near Tropicana Golf Country Resort in Petaling Jaya. 

On its website, Lambo Group Bhd states that its address is at Menara Lien Hoe, even though the address in its annual report is in Old Klang Road in Kuala Lumpur. 

In 2006, Lien Hoe Corp Bhd sold Lien Hoe Tower Sdn Bhd, which owns Menara Lien Hoe, to privately held E-Globalfocus Sdn Bhd for RM1 and the assumption of RM43 million in debts. Meanwhile, E-Globalfocus was 68%-controlled by Cubes Innovative Sdn Bhd, a company 99%-controlled by Chuah Hock Soon. 

Chuah and businessman Datuk Kenneth Vun @ Vun Yun Lun were charged with four others in July 2014 for allegedly manipulating DVM Technology Bhd shares in March 2006. 

Vun has had several issues with the Securities Commission Malaysia and, in 2009, had to restitute RM2.496 million — being the amount of company funds that he had caused to be misused for his personal benefit, according to the regulator — to his then flagship FTEC Resources Bhd. Since FTEC — which morphed into Tecasia Bhd and later Mangotone Bhd — was delisted, 

Vun has had little direct presence in the market. However, Vun’s two sisters, Carol Vun On Nei and Grace Vun Siaw Nei, hold stakes of 3.64% and 0.67% respectively in Xidelang Holdings Ltd. 

Fragmented shareholding 

While Fintec Global seems to be a prominent company at the centre of the maze, its shareholding is fragmented, with several blocks of shares parked under Sanston Financial Group Ltd. In several of the 21 companies on the list, Sanston Financial is present in the shareholding list. Other companies that surface as shareholders in these list of companies include Global Prime Partners Ltd and Cita Realiti Sdn Bhd, a private company wholly-owned by one Kamarudin Khalil. Other shareholders, albeit usually holding small stakes, among the 21 companies include Datuk Jacky Pang Chow Huat — who, apart from a 11.84% stake in Sanichi Technology Bhd — has small stakes in DGB Asia Bhd, Focus Dynamics, MNC Wireless Bhd and Xidelang. Pang is also a director in Sanichi Technology.

Meanwhile, businessman Mak Siew Wei has 23.4% in AT Systemization, 17.07% in Green Ocean Corp Bhd and small stakes in Focus Dynamics and Xidelang. He is also a director at AT Systemization, Green Ocean and Saudee Group Bhd. Datuk Eddie Chai Woon Chet recently acquired a 62.37% stake in restaurant operator Oversea Enterprise Bhd, and has a 6.71% shareholding in Anzo Holdings Bhd, where he is managing director and has a board position in M3Technologies (Asia). Another name frequently seen is Datuk Kua Khai Shyuan, who, besides a 5.9% stake in mTouche Technology, has small shareholdings in Focus Dynamics, PDZ Holdings Bhd and Sanichi Technology, and has board seats on Trive Property Bhd, DGB Asia and MNC Wireless. Former Umno treasurer and former Bank Simpanan Nasional Bhd chairman Datuk Abdul Azim Mohd Zabidi surfaces as a director in four of the companies — Fintec Global, DGB Asia, Anzo and XOX. 

Most of the companies are loss-making and small in terms of market capitalisation, with the exception of Focus Dynamics, which has a market value exceeding RM5 billion. Nevertheless, Focus Dynamics, which is involved in operating food and beverage outlets, seems to be the star performer, with its stock price hitting a multiple-year high of RM2.64 recently on Sept 17, despite mustering a meagre RM3.08 million in net profit from RM20.72 million in revenue for its six months ended June this year. Year to date, Focus Dynamics stock has gained about 400%. 

Irrational exuberance 

Trading volume on most of the 21 companies is generally high, and many have shown unexplainable strong gains over the past few months. 

• For instance, Saudee’s stock hit a low of eight sen on March 17, and picked up momentum in June to hit a 52-week high of 67 sen on Aug 13, gaining more than 300%. For its nine months ended April this year, Saudee, whose mainstay is in frozen food and poultry, suffered a net loss of RM27.78 million from RM57.61 million in revenue. Last Friday, Saudee closed at 48 sen, translating into a market capitalisation of RM77.3 million. 
• If you are impressed with Saudee’s gains, Anzo — a loss-making company that has a business in timber products — gained more than 1,000% from mid-May to hit a high of 26 sen in July. Anzo closed at 11.5 sen last Friday, giving it a market capitalization of RM102.7 million. 

There are several companies on the list that have shown similar patterns. 

• XOX, which is involved in cellular telecommunication services, gained more than 430% from mid-July to hit a high of 39.5 sen at end-August. In mid-March this year, XOX was trading at one sen. The stock closed last Friday at 19.5 sen, translating into a market value of RM562.8 million.
• Ailing shipping company PDZ’s stock was trading at one sen in mid-March, but at end-June, it gained more than 500% to 32.5 sen in mid-July. For a company mired in law suits and a significant dearth of shipping assets, PDZ’s meteoric rise is surprising to many. PDZ ended last Friday at 10 sen, giving it a value of RM89.4 million. 
• Similarly, Sanichi Technology, which is in precision moulding, saw a sudden surge in trading volume at end-May, with its stock spiking more than 150% to hit a high of 12.5 sen on June 2, after which it tapered off. 

While the peaks may be enticing to punters, the change in fortune, with counters falling to their troughs, can be a deterrent. 

• mTouche Technology, which has a wireless network and mobile messaging business, saw its stock crash from a high of 20.5 sen on Feb 20 this year to a low of 5.5 sen on May 12. 
• DGB Asia, a tracking solutions company, was trading at 19.5 sen in the early part of November last year, but by mid-March, it had shed most of its value to close at 1.5 sen on March 19. 

It is also noteworthy that companies such as Water Beaute World Bhd and WBW Global Sdn Bhd, have 1.02% and 0.42% respectively in Trive Property. These two companies were involved in get-rich-quick and fake online investment schemes. Both these companies were reported in the past to have stakes in XOX, while WBW Global also had a substantial stake in Anzo Holdings.

https://www.theedgemarkets.com/article/special-report-hidden-hands-behind-penny-stock-surge?type=malaysia

Comment:

Fine piece of investigative financial investigation and journalism.  Thanks to Edge.

Securities Commission Malaysia - 82pc offences involve insider trading, mart manipulation

13 March 2014

82pc offences involve insider trading, mart manipulation

KUALA LUMPUR: The Securities Commission Malaysia (SC) said 82 per cent of its 56 active investigations involved suspected insider trading and market manipulation offences.

The rest of the investigation cases comprised of securities fraud, intermediaries misconduct, unlicensed activities and matters of corporate governance.

A total of 16 referrals were received from sources like market surveillance and investor affairs and complaints departments and other regulatory bodies.

SC said a majority of the whistle-blowing cases - 75 per cent - were attributed to suspicious trading activities like market manipulation and insider trading.

Breaches in corporate governance practices and illegal conduct of regulated activities also figured in the referrals that the SC received, it said in its 2013 annual report released yesterday.

The SC's various enforcement measures in 2013 had resulted in 34 criminal charges filed against six individuals and five against directors in public-listed companies, for offences relating to false financial reporting.

It also filed a civil suit in the High Court against a former licensed asset management company to claim RM13.3 million for losses caused to 63 investors. Regulatory settlements from this case amounted to over RM2.7 million, with steps taken to provide restitution to impacted investors.

The body also imposed four administrative sanctions on licensed intermediaries and as a bond trustee for their failure to comply with regulatory obligations.

A total of RM1.35 million in penalties were collected through such actions and 70 infringement notices were issued for other various breaches of securities laws and guidelines.

The SC used its investigation powers to obtain evidence from various sources like professional companies, financial institutions, public-listed and private companies, regulated entities, investors and various individuals. Oral evidence was gathered as formal recordings of statements from witnesses.

Last year, 246 witnesses' statements were recorded and these individuals comprised of professionals, advisers, company directors, senior management teams from listed companies as well as licensed persons.

As the trend in cross-border transactions is becoming common in many of the SC's investigations, the SC continues to cooperate with its foreign supervisory counterparts through the IOSCO's multilateral memoranda of understanding on consultation and co-operation and exchange of information.

In this regard, the SC made 24 requests to seek assistance from seven foreign jurisdiction to obtain evidence. The places include China, Hong Kong, British Virgin Islands, Singapore, Switzerland, United Kingdom and the United States.

On the other hand, the SC received 11 requests for assistance from foreign supervisory authorities of seven jurisdictions.

http://www.nst.com.my/business/nation/82pc-offences-involve-insider-trading-mart-manipulation-1.509938

Spotting Sharks Among Penny Stocks

October 30 2012

For every publicly traded corporations with market capitalization in the hundreds of millions and billions, there are thousands of smaller companies with much more modest market caps. Because these companies have smaller operations and more risks, they trade at only a fraction of the price of their much larger counterparts. These are, of course, the infamous penny stocks. This article will look at some of the dangers that lurk in penny stocks trading.

The Myth Of Evolution
One thing that keeps people dabbling in penny stocks is the belief that these corporations will evolve into firms that will become much like their larger counterparts. This has happened, but not as regularly as penny stock proponents would have you believe.

Many public firms simply defer going public until they have grown large enough for it to be worthwhile. Until that time, they will usually raise money through private investors or corporate loans along with their regular operations. Generally, these companies do not need an initial public offering (IPO) to fund an expansion. The larger a company becomes, the more practical it is to raise funds through a public offering, because although equity is seen as a relatively more expensive form of financing, it often becomes necessary for larger companies.

Good Intentions?
If a company is offering its stock at the penny level, it is usually for one of the following reasons. First, the company may be on the cusp of a large expenditure, and it believes that the money raised by an IPO will be enough to finance it. Second, the company may have reached the apex of its growth and it wants to change its tax structure or disperse the profits.

There are also less noble reasons for a company to go through an IPO process when it is still quite small. Sometimes a company is talked into an overpriced and overhyped IPO by penny stock brokerage firms that want to make a quick dollar from unwary investors. An IPO could also be an attempt by the company's owners to offload their ownership to investors because they see little promise in the company's future.

Oranges and Apples
It is important to remember that within penny stocks, there is a wide range of companies. You can find an oil prospecting company with a recognizable corporate structure right next to a family-run organic farm that specializes in cabbage. Some of those companies may allow investors to have a say in who is running the show, and some may be one-man operations that suffer terribly when the founder retires or dies. And while larger companies generally strive to please investors, penny stock companies may pay no mind to their investors at all.

The Bait
Not many value investors spend their time in penny stocks. Although a well-managed penny stock company may see good returns over the years, it is much more difficult to get full disclosure and the rules that apply to penny stocks are much looser. These companies do not face the same standards as large firms, are required to file with the Securities and Exchange Commission (SEC) less frequently and have limited requirements for listing.

What lures investors into the oceans of penny stocks is the dream of buying 1,000 shares for $0.50 and then later selling them for $5 or some similarly lucrative transaction. Unfortunately, that ocean is full of sharks that know exactly what you're looking for.

The Bite
Some people think that brokerage firms that specialize in penny stocks are often just a step up from a guy with a bat waiting to rob someone in a dark alley. Successful companies don't need people to cold call and talk up their stocks. Penny stockbrokers engage in a mixture of cold calling and targeted sells. They often have a collection of leads, people who have had a history of buying into poor investments over the phone or who have given their information to someone who turned around and sold it.

Using this list, the stockbrokers will call prospective marks and introduce themselves. Soon after, be it a day or a week, they will call again with a chance to get in on the ground floor of a stock that is set to rocket away. This will prove to be a stock that they have been pumping up in message boards, emails, newsletters, etc. Then, when investors buy in, the firm and its partners get out and leave a gaping wound in the investors' portfolios. These firms are also known to take their pound of flesh in the form of high commissions. 

These firms, and the brokers that support them, will often use techniques such as advertising in mass emails. You may see mailings in your account about the latest greatest stock that is set to return 1,000%. In all cases, without doubt, it is a penny stock, and one you probably should avoid. 

Multiple Victims
Sometimes the companies involved in these swindles are complicit, but even honest companies find their stocks targeted by unscrupulous penny stockbrokers. These sharks may take an innocent company that has had a few good years and make false publications or claims that "insiders" have said it is poised for a leap. When the brokers pull out, they have not only ripped off investors but also ruined the reputation of an otherwise stalwart company.

Blood in the Water
If an investor has the poor judgment to get involved with penny stockbrokers, he or she may find a permanent target painted on his or her back. Because of the profits and commissions involved, these brokers will persist with their calls until they get your check - after that the calls will dry up and the number may even change. Many of the sharks in penny stock brokerages have securities violations on their records, but it is their ability to sell that keeps other firms hiring them - and it is dishonest profits that keep penny stock brokerage firms in business.

The Bottom Line
By and large, attempts to regulate penny stocks have been thwarted. The low prices make them ideal for manipulation because a few false cents per share can mean thousands if you hold most of the shares. The internet has also offered a whole new medium by which to cheat investors. For every site that exposes penny stock fraud, there are hundreds of sites espousing one undiscovered treasure or another. The best way to avoid getting swindled in the penny stocks is just to stay out of the water - if you don't swim, you won't be bitten.

Read more: http://www.investopedia.com/articles/stocks/07/penny_stocks.asp#ixzz2AmZW70kj