Newspapers being used to hype penny stocks

Lynnley Browning of The New York Times writes for Wednesday’s paper that newspapers are increasingly being used by penny stock companies to pump up their stock prices.

Browning wrote, “Open up a major newspaper, including USA Today and The New York Times, and you could see full-page advertisements with the same solicitations, all hyperventilating with ‘insider’ tips on the next big investment.

“The promotion of penny stocks, for years a staple of Internet spam and ‘boiler rooms’ running illegal pump-and-dump schemes, has recently burst forth in splashy full-page ads in major daily newspapers. Not even the recent market turbulence has deterred the marketers of these penny stocks, which are traded in over-the-counter markets and have long been a magnet for fraud.

“Penny stocks are volatile, risky, thinly traded securities issued by minuscule companies that are disproportionately known for having big losses, meager sales, cozy insider management and scant or unverifiable financial data. Unscrupulous promoters typically work by ‘blast’ faxing or flooding the Internet with press releases so that investors will read the dubious news and bid up the hyped shares. Then the promoters can cash in by selling the stock, typically in huge volume.”

Read more here. Talking Biz News noted earlier this year that the penny stocks were using business magazines to do the same thing.