More Problem(s) with Penny Stocks.
Misrepresentation and/or Omission of Relevant Facts
Unfortunately, being stupid and/or ignorant is not a crime (our prisons are overcrowded as it is, already). Similarly, making bad business decisions is not a crime, either. And although being negligent and/or reckless can cause damages that one can file a claim against, the perpetrator isn’t necessarily a criminal…
However, intentionally tweaking the truth and/or intentionally withholding the truth IS a crime! Misrepresentation and Omission of Relevant Facts play the roles of the “white lies” of Fraud. Less egregious, more subtle and perhaps harder to discern or prove in court, but still a con job.
So whether it’s the company that’s doing it, or the broker/advisor that solicits a transaction in a company’s securities, being anything other than fully transparent opens the door for this kind of violation.
Pump & Dump and Rugpull Schemes
P&D and Rugpull schemes typically involve the actions of VERY LARGE stakeholders/shareholders, who drum up public interest and awareness prior to unloading their stake to the public. This is a long-side/bullish scheme, where the scammer will accumulate shares at a relatively low price, and sell them while/after deceived investors drive the price up. In this sense, you can also consider unwarranted “smear campaigns” as their bearish counterpart, where the scammer either short-sells the shares and/or buys Put options, and profits from the subject security’s decline.
So while there are a crapton more risks that involve immoral actions of others, there are just as many risks that are inherent to Penny Stocks and trading them…