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It can be tempting to invest in micro-cap stocks that trade on the over-the-counter (OTC) markets due to the potential for a large return on your investment. If you can find that gem of a company that’s undervalued and ahead of the pack for developing something novel, you can turn pennies into millions, but you can also lose your shirt. That’s why smart investors never invest more than they can afford to lose in OTC securities and go into these investments with a thorough understanding of the risks. Sadly, some financial institutions churn fees by luring inappropriate investors into buying OTC stocks without appropriate warnings. If you’ve lost money on OTC securities that were recommended by your broker, you should speak to an experienced investment broker fraud attorney about making a claim. MDF Law represents investors that have been taken advantage of by unscrupulous brokers and financial institutions. We handle your case on a contingency fee, so you don’t have to pay us unless we collect money for you. Call 212-203-9300 for a free attorney consultation.
There are four basic categories of stocks, based on the amount of market capitalization for the company. The market capitalization amount is based on the total worth of the company’s shares. These are the four types:
Large-cap, mid-cap, and small-cap stocks trade on the regular exchanges, but micro-cap stocks are only traded over-the-counter (OTC.) If you’ve lost money because your broker encouraged you to invest in the OTC stocks without warning you of the risks, you may be entitled to compensation. It’s important to contact an experienced broker fraud attorney as soon as possible if you believe you’ve been taken advantage of, so that evidence can be preserved and deadlines can be met.
In addition to lower market capitalization, there are additional ways that micro-cap OTC investments differ from other types of stocks. These are the most important differences that investors should be aware of:
A 2016 Securities and Exchange Commission (SEC) analysis of investments in OTC stocks found that the typical return on investment is severely negative and that older, retired, low income, and less educated investors are more likely to lose money on these investments. A regulation mindset is exacerbating the problem by allowing companies to disclose less information, creating a void that is filled by “fraudsters” that release false and misleading information intended to entice investors into buying a particular micro-cap stock. The study also found that the rags to riches scenario rarely plays out as micro-cap stocks are unlikely to graduate to the major exchanges. Despite these increasing risks, the market for OTC counter stocks is growing due to campaigns such as:
Some mid-cap companies trading on OTC markets are worthy investments, but it’s important to only invest in companies where it’s possible to get adequate and trustworthy information from the following sources:
There are very specific disclosures and eligibility requirements for brokers that recommend OTC stocks to their clients and failing to adhere to these requirements can give rise to a claim.
If you’ve lost money on investments that were recommended by your broker, you may have been a victim of broker fraud. The SEC has many requirements for eligibility and disclosure that brokers are required to follow, and when they fail to do so, they can be sued for their investor’s losses. The best way to find out if you have a claim is to contact an experienced broker fraud attorney that can review the facts of your case to determine whether you have a strong case. At MDF Law our entire practice is dedicated to representing investors that have been taken advantage of by unscrupulous brokers and financial institutions. We handle cases on a contingency fee, so you don’t have to pay us unless we collect money for you. Call 212-203-9300 for a free consultation.
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