Penny Stock Reform Act
Categories: Stocks, Regulations
See: Penny Stock.
Yee-haw! The true wild west of the investment world: penny stocks.
Penny stocks nowadays aren’t pennies. They’re stocks under $5 or so that you can buy over-the-counter (OTC). Must. See. The Wolf of Wall Street.
Many consider penny stocks more of a fun gamble at the slot machine than a legit investment. Penny stocks don’t make it to the big-league stock exchanges, probably because they don’t meet the necessary requirements (listing requirements and regulatory standards), and they’re speculative and risky.
Since penny stocks weren’t regulated, fraudsters took them as a platform of fraudster opportunity. The Penny Stock Reform Act of 1990 tried to change that. Losing $2 billion a year from penny stock schemes had Americans fed up. Well...that and the high-profile Congressional hearings of self-professed organized crime dude in the Mafia, Lorenzo Formato. He was into making big pennies off penny stock manipulation.
The act didn’t really regulate penny stocks themselves, but it did regulate things surrounding penny stocks: penny stock issuers, brokers, and dealers are all required to disclose certain info to potential penny stock buyers to make sure they know what they’re getting into. The Securities and Exchange Commission (SEC) has this locked down.
The Penny Stock Reform Act tried to put some responsibility on penny stock sellers, and provide better forums for quoting penny stock securities. Since a lot of pump and dump schemes happened from hyping people up and then undercutting them, the act aimed to hit sellers where it hurt: requirements to tell the truth.
Like Big Brother and that guy across the street with the binoculars, the SEC is...always watching.
