Six Tips for Avoiding Shell Company Fraud

Shell companies -- companies that have no or nominal business operations or non-cash assets for an extended period of time -- can be used for legitimate purposes. However, they can also be used by fraudsters as vehicles for stock manipulation.The shares of shell companies, for example, are prime targets for fraudsters looking to pull off a pump-and-dump scheme in which the fraudster goes out and buys up shares of a forgotten, very low-priced stock with little to no trading activity. They then aggressively promote the stock by spreading misleading -- or outright false --information about that company to pump up the price. Fraudsters might also engage in manipulative trading in the stock to artificially increase its price and volume, which can lead to increased attention and interest from new investors.Once the share price jumps, the fraudsters will dump their shares and leave investors holding stock that likely now has no value beyond the initial hype and baseless claims touted by its promoters.Continue readingWeiter zum vollständigen Artikel bei MotleyFool Weiter zum vollständigen Artikel bei MotleyFool