The two groups overlap, and many of these stocks trade over the counter rather than on a major exchange, where there is often little public information and few buyers. That makes prices easier to move and shares harder to sell, which is why these stocks are a common target for pump-and-dump schemes. Losing money in a penny stock or microcap is not, by itself, a claim. The key questions are whether the stock fit the investor and whether the professional who recommended or sold it fulfilled their duties.
This May Not Be Your Fault
Penny stock pitches can be persuasive. They often arrive by phone, text, email, or social media from someone who seems to know something you do not. If you bought and the price collapsed, you are far from the first, and the pitch was designed to sound convincing.
A broker who recommends a low-priced, thinly traded stock has a duty to you. Under FINRA (the Financial Industry Regulatory Authority) rules and Regulation Best Interest, a recommendation must be in your best interest, based on your age, finances, goals, and tolerance for risk. Special SEC penny stock rules also require brokers to give you certain disclosures before many penny stock sales. When those duties are not met, responsibility may belong with the broker and the firm.
