Penny stocks are a type of stocks that are usually traded for a price of under one dollar, and often for just under a penny. This type of stock is one that is not well regulated and because of this penny stock fraud is a very common problem. In fact, it is so common that different slangs have been created around this type of fraud.
One of the most common types of penny stock fraud has the name Pump and Dump. In this type of fraud a group of speculators will get a lot of shares in a particular penny stock. One they have gotten their desired positions, they will release news that is designed to pique the interest of people and their perception of the stock (this is called financial porn). The purpose of getting this news out is to entice small time investors to begin trading the stocks. Of course, the news that is released is almost always fake but before people find out that it’s a fake, the price of the penny stock will already increase significantly and the original speculators will gain a lot in terms of profit as the value of the stocks rice.
The inverse of a Pump and Dump is called a Poop and Scoop. In this type of fraud, negative news and rumors are circulated about a company in order to push the price of the company’s stocks down. When the value of the stock drops, the manipulators will then buy the stocks in the hope of the prices rebounding when it is discovered that the rumors and news are false.