Penny Stocks

HAVE you been told that you can make easy money by investing in penny stocks? Well, you might, but it's unlikely.

Penny stocks are high risk securities that are issued at $1 a share, or much less. Sometimes they quadruple in price on the first day of trading, possibly because they have been manipulated by unscrupulous securities firms. Penny stocks don't usually trade on an exchange but in markets made by some 300 regional brokerage houses that, since the autumn of 1988, have been under the scrutiny of a special task force of the Securities and Exchange Commission. According to the SEC, many penny stock brokerages use fraudulent sales pitches to promise investors gains that don't materialize. When a penny bubble bursts, there is often little or nothing left in your investment.

If you are still lured by the chance that your penny stock will really take off, make sure your brokerage is registered by the National Association of Securities Dealers. Then if it should be liquidated, you can get back whatever money is in your account and the stock you bought, whatever it is worth. Trying to recover the money you originally put out for the stock is another matter.