Recently, the Securities and Exchange Commission released a statement concerning its continued efforts to minimize the risk of incidents of microcap stock fraud. Since its inception in 2012, the SEC’s fraud-fighting initiative, Operation Shell-Expel, has made strides toward ensuring that microcap fraud is reduced to the greatest degree possible. One way the SEC is working to this end is by forming the Microcap Fraud Task Force in 2013. The primary purpose of this task force is to focus on attorneys, brokers, and others who tend to be serial offenders of microcap scams. Also of grave concern to the SEC is that often times these dormant shell companies are attractive opportunities for organized crime to capitalize on these shell companies.
One recent major effort to crack down on this particular type of fraud is the SEC’s Enforcement Division’s Office of Market Intelligence suspension of trading in 255 dormant companies that they believe are a high risk for over-the-counter market fraud. This suspension in trading prevents those who commit fraud from manipulating these shell companies.
Microcap stocks differ from other stocks in that they are generally defined as those with a market capitalization of under $250 million. Usually the smaller a company is, the greater the risk when investing in them. These companies usually don’t meet the requirements of traditional stock exchanges therefore they are usually traded through OTC Bulletin Board or the pink sheets. Often these microcap fraud set-ups include the use of the Internet and various types of social media to pull off such schemes.