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You may have lost money in your investment portfolio,
due to mismanagement and not even know it.

Protect Yourself From Micro-Cap Scams

If you are like many Los Angelinos, you invest in the stock market in order to build the portfolio you intend to keep you in comfort during your retirement years. Perhaps you like to roll and dice occasionally and decide to invest in one of the multitude of publically traded "micro-cap" companies.

Those companies are ordinarily on the "pink sheets" because their market capitalization only ranges from $50 million to $300 million, but that doesn't mean that some of these companies, which people trade on the Over-the Counter Bulletin Board, can't be good investments.

So why don't more people invest in companies on the OTCBB?

One of the hallmarks of good investing is doing your research. The availability of information on these smaller companies isn't nearly as good as it is for the larger companies traded on the stock market floor since the Securities and Exchange Commission doesn't have reports from many of these micro-cap companies. This makes investing in them riskier. It also makes them more susceptible to being used for investment fraud scams.

What to watch for when it comes to micro-cap scams

Unscrupulous individuals often use micro-cap companies for investment fraud scams. Red flags that you could be the target of in such a swindle include the following:

  • Is the opinion you received really unbiased and independent? Some micro-cap companies pay people to promote their companies. Does the person you are dealing with possess a certification that requires adherence to an ethical code?
  • It's always good advice not to invest in a stock promoted by an unsolicited email. These communications often contain false information from a con artist.
  • Trusting press releases may not be a good idea, either. Looking into its details further could reveal that the information is less than accurate.
  • Just as it's not a good idea to believe everything you see in your email or on the internet, you probably shouldn't believe everything you hear on the phone either. Unsolicited calls, also called "cold calls" from strangers offering you the "deal of lifetime" may be part of a boiler room scam. These callers work in high-pressure sales and often push micro-cap stocks since verifying the information given over the phone is harder to do.
  • Some scammers use internet bulletin boards to try to convince people that they have exclusive information about a company that makes its stock attractive.

Regardless of how you become interested in investing in a particular micro-cap company, it's always a good idea to do research yourself to ensure that you received accurate information. You may discover that the so-called facts you were given either don't exist or were just plain wrong.

What happens if you became the victim of a scam?

If this information comes to you too late, you still may be able to recover the money you lost. Investment fraud happens more often than you would believe, and attempting to resolve the issue may be a complex process. Others here in California who have fallen victim to these types of scams have turned to local legal resources for help, and you may find it worthwhile to do the same.

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