#help.tut Extra help on tutorials #define.stb ON LINE GLOSSARY /* The Comptroller's Office of the State of Florida recently released an information guide to avoid penny stock fraud. Many of the things which are stated in this information guide are applicable to any investment. I hate to say this, but in most instances of securities fraud there are two guilty parties-- the person selling the fraud and the person who allowed himself to be defrauded! Read and learn. This pamphlet is reprinted with the kind permission of the State. If you follow the guidelines in this publication, you will eliminate or reduce the possibility of losing you money to stock fraud in general.*/ As Comptroller of the State of Florida, I am responsible for the regulation of securities dealers, finance companies and state chartered institutions such as banks, credit unions, and savings and loan associations. My office, the Department of Banking and Finance, receives numerous complaints from investors who have lost money by purchasing penny stocks. As a result, we have been working with the Securities and Exchange Commission and the Federal Bureau of Investigation to curtail these abuses. We have instituted a three part program to accomplish this: (1) pursuing legal action against companies and individuals who fraudulently sell this product; (2) amending our statute to give us greater power to investigate and take action against offenders; and (3) making the public aware of the pitfalls of investing in penny stocks. WHAT ARE PENNY STOCKS Penny stocks are low priced shares, usually selling under $ 5.00 per share initially. With few exceptions, they are not traded on the national stock exchanges (such as the New York or American Stock Exchange) or quoted on the National Association of Securities Dealers Automated Quotation (NASDAQ) system. Some penny stocks are sold legitimately, but a number are sold fraudulently. Penny stocks are traded on the over the counter (OTC) market. For stocks listed on an exchange or quoted on NASDAQ, volume and price information is collected electronically and made available to the public. For many penny stocks, the brokerage firm trading the shares is the only source of information about price and volume and usually they only provide information about the trades that they have made. Also, they may be the only place where you can sell the stock, at whatever amount the offer to pay. One private company prints a daily list of firms, known as the "Pink Sheets", which includes the price of some OTC stocks. Some newspapers publish the price of certain penny stocks. However, information about many penny stocks is not published or available to the public and the public price is not necessarily the price for which you can sell your stock. WARNING SIGNS OF PENNY STOCK FRAUD 1. Unsolicited telephone calls. Beware of a sales person who promises you quick profits with little or no risk. Remember, if an investment opportunity sounds too good to be true, it probably is! 2. High pressure sales tactics. These may include statements by the salesperson, such as: he has "inside" information on a stock and you should purchase now, before it comes public; you have a unique opportunity for a short period of time to buy a stock at a special or below market price; the price has already risen several times and you should purchase immediately before it goes even higher; or you may buy a particular stock only if you agree to buy another company's as well. 3. Inability to sell your stock and receive cash. Fraudulent penny stock brokers will strongly resist your desire to sell your stock for cash, often insisting that you buy another stock in its place. You may be unable to reach your broker when you want to sell. INVESTIGATE BEFORE YOU INVEST No stock rises in price all the time. Penny stock investments are highly speculative. Be sure you understand the risk of loss-- including the possible loss of your entire investment. The following risks are greater for penny stocks than other investments. Risk of Market Domination and Price Manipulation. Many penny stocks are traded by a single brokerage firm or only by a few firms. This means that the broker may have a monopoly and may take unfair advantage of you by manipulating the price. Frequently, they will run up the price of the stock and then cease trading it all together, allowing the value of the stock to fall drastically. Risk of excessive charges. Brokerage firms that specialize in penny stocks generally earn their profits by charging "mark-ups" above the price the firm pays for the stock. The State of Florida and the National Association of Securities Dealers (NASD) set limits on the amount a firm may mark up the price of a stock. Some firms charge mark-ups as high as 100% or more. Undisclosed, excessive mark-ups are illegal under state and federal laws. because of the limited number of firms selling these stocks and the limited availability of current price information, the opportunity for unscrupulous brokerage firms to overcharge you is a particular risk. Lack of Stock Price Information. Frequently, it is impossible for you to get stock price and volume traded information from anyone other than your broker. This makes it difficult to monitor your broker's recommendation or changes in the value of your investment. Lack of Information About Your Investment. Companies listed on an exchange or quoted on NASDAQ are required to make quarterly and annual reports of financial conditions available to the public. Many penny stock firms do not make this information available. Before you buy any stock, but especially a penny stock, consider these important steps. Check out your alternatives. If your broker's firm is the only one actively trading the stock, you will be dependent on that firm. If you become unhappy with the investment or the broker, you may not be able to sell the stock elsewhere. Obtain Information. ASk your broke for written information about the company. If the broker will not provide it or tells you there is not time to read it, beware! Check Out Your Broker. Inquire about the broker's experience and background and that of the firm as well. Ask the salesperson if he and his firm are registered with my office and the NASD. Request that he confirm this information in writing, then call my toll free hotline at 1-800-848-3792 to verify the information and see if there has been regulatory action taken against the firm or the salesperson. Keep Records. Ask to send you written copies of any predictions about the performance of the stock. Keep notes of what he tells you. Ask About Price. Ask your broker the price that the firm is currently paying other customers for their stock, as well as the price at which it is selling the stock to you-- this is the mark- up. A large difference suggests that you may be at a serious disadvantage when you try to sell your stock. IF YOU FEEL THAT YOU ARE A VICTIM 1. Confirm any instructions to your broker by certified letter or telegram. 2. Document your complaint and bring it to the attention of the branch manager, compliance officer, or president of the firm. 3. If you cannot resolve the problem with the company or if you suspect fraud, call my toll free Hot Line at 1-800-848-3792. My staff will be happy to assist you. /* This is either for Floridians or those who are dealing with Florida based brokers. */ YOU CAN HELP Please help us fight penny stock fraud. Many investment scams are brought to our attention by the potential target of that scam-- you, the investor. If you receive telephone calls or sales material that you believe is fraudulent, please report it to my toll free Hot Line, 1-800-848-3792. /* Again for Floridians or those receiving solicitations from Florida based brokers. */ Help protect other investors from losing their hard earned dollars. Also, if you have information or problems with other state financial institutions, please call the Hot Line. Thank you.