One of the best ways to avoid stock fraud is:
NEVER INVEST WITHOUT LOOKING AT THE COMPANY'S FINANCIAL STATEMENTS
If you can't get an accurate financial statement on the company, from places like the SEC's EDGAR database ( sec.gov ) or (less reliable) from the company, you should not invest money in it. PERIOD!
When you buy stock, you are buying a part (albeit small) of a business. Since it is supposed to be a business, without a financial statement, you really have no idea what you are buying. You have no idea of whether or not the company is economically viable, or if it is just a concept. Scammers often will tip themselves off by refusing to provide a financial statement.
You should learn to read a financial statement (the New York Stock Exchange has a page at nyse.com on this, and numerous investment books teach you how).
The major U.S stock exchanges (NYSE, AMEX, NASDAQ) require that a listed company stay current in filing its financial reports with the SEC. Even stocks that trade on the OTC Bulletin Board are often required to file their financials with the SEC. There are currently only a few exceptions, such as a small family business or a company that was public before the Securities Acts Amendment of 1964. Scammers sometimes use a "reverse merger" with a defunct, company that was public in 1963 or earlier in order to avoid SEC filing requirements. (Also, some scammers falsely claim that their stock is traded on the NASDAQ, when it is actually on the OTC BB.)
The most common types of SEC required financial filings are the 10-K (annual report) and 10-Q (quarterly report). Smaller companies can use the 10-KSB or 10-QSB forms which are less detailed, but still give the necessary disclosure of the company's finances.
As an experiment, I went through a list of OTC Bulletin Board companies in my area looking for a small company I could get financial reports on through the SEC. One such company, selected at random was Cardiac Science (ticker:DFIB). I found reports like their 10-QSB filing at sec.gov . While the financials don't look that good (they lost more than 700,000 dollars in the last quarter), I think the company is "doing the right thing" by making its financial information publicly available.
Paul M. |
