Remedies for Penny Stock Failures
Private investments can still lead to viable securities claims
Penny stocks are stocks that are not listed on a national exchange such as NYSE or NASDAQ, that trade below $5 a share, and that meet other defined SEC criteria. Usually, investors do not use a broker to make penny stock investments. Still, there are times when brokers do intervene and recommend these types of stocks. When brokers do take an active role and recommend penny stocks, the broker and the broker’s firm must meet specific requirements established by the SEC
If you have been the victim poor investment advice, the securities fraud lawyers at The Frankowski Firm work tirelessly to show where brokers have been fraudulent or negligent. Our legal team has won and obtained large results in numerous securities arbitration cases. We also bring claims in state and federal courts for violations of national and state securities laws. We work with financial professionals to determine when and how brokers who recommended penny stocks failed to meet their SEC obligation and when and how fraud occurred.
Why are penny stocks risky?
Penny stocks have many risks. Investors who purchase them in large quantities can suffer huge losses because they are:
- High risk
- The target of “pump and dump” schemes where the stocks are bought in large amounts and then sold at a higher price after the price has been falsely pumped up.
- Given little oversight, which makes them subject to manipulation.
It also can be very hard to determine the true value of a penny stock.
Does a broker have to comply with the rules of the Securities Exchange Commission (SEC)?
Section 15(h) of the Securities Exchange Act of 1934 requires that a broker-dealer must:
- Approve the investor for the penny stock transaction and get written confirmation from the customer approving the transaction.
- Provide the investor with a disclosure document that details the investment risks.
- Provide the current market quotation, to the broker, if the quotation is available.
- Inform the investor what commission the broker and the firm will receive on the penny stock transaction.
The broker also has a duty to provide monthly account statements stating the current market value of the penny stock after the sale is executed.
Speak with a trusted financial investment attorney about claims for penny stock losses
If you lost money due to a broker recommended penny stock investment, you may have a viable legal claim. The securities fraud attorneys at The Frankowski Firm handle stock negligence and fraud cases even when the stocks are not traded on a national exchange. To learn if you have a claim against a broker or investment firm please call us at 888- 390-0036 to schedule a free consultation or complete our contact form. We have the financial and practical skills to analyze your claim and seek legal redress.