Introduction Information is the investor's best tool when it comes to investing wisely. But accurate information about "microcap stocks" - low- priced stocks issued by the smallest of companies - may be difficult to find. Many microcap companies do not file financial reports with the SEC, so it's hard for investors to get the facts about the company's management, products, services, and finances. When publicly-available information is scarce, fraudsters can easily spread false information about microcap companies, making profits while creating losses for unsuspecting investors. Even in the absence of fraud, microcap stocks historically have been more volatile and less liquid than the stock of larger companies. Before you consider investing in a microcap company, arm yourself first with information. This Guide tells you about microcap stocks, how to find information, what "red flags" to consider, and where to turn if you run into trouble. What Is a Microcap Stock? The term "microcap stock" applies to companies with low or "micro" capitalizations, meaning the total value of the company's stock. A typical definition would be companies with a market capitalization of less than $250 or $300 million. The smallest public companies, with market capitalization of less than $50 million, are sometimes referred to as 'nanocap stocks.' This guide will use the term 'microcap stock' to refer to both microcaps and nanocaps. Microcap companies typically have limited assets and operations. Microcap stocks tend to be low priced and trade in low volumes. Where Do Microcap Stocks Trade? Many microcap stocks trade in the "over-the-counter" (OTC) market, rather than on a national securities exchange such as the New York Stock Exchange or NASDAQ. They are quoted on OTC systems, such as the OTC Bulletin Board (OTCBB) or OTC Link LLC (OTC Link). OTC Bulletin Board The OTCBB is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information for many OTC equity securities that are not listed on a national securities exchange. Under the OTCBB’s eligibility rule, companies that want to have their securities quoted on the OTCBB must seek sponsorship by a market maker firm that is a registered broker-dealer as well as file current financial reports with the SEC or with their banking or insurance regulator. The OTCBB operated by the Financial Industry Regulatory Authority (FINRA). The OTCBB is not part of The Nasdaq Stock Market. Fraudsters may claim that an OTCBB company is a Nasdaq company to mislead investors into thinking that the company is bigger than it is. OTC Link LLC OTC Link is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information in exchange-listed securities, OTC equity securities, foreign equity securities and certain corporate debt securities. In addition to publishing quotes, OTC Link provides, among other things, broker-dealer subscribers the ability to send and receive trade messages, allowing them to negotiate trades. OTC Link is registered with the SEC as a broker-dealer and as an Alternative Trading System, and is a member of FINRA. OTC Link organizes securities into three marketplaces based, in part, on the amount and quality of available information:   OTCQB - includes the securities of companies that are current in their reporting to the SEC or a U.S. bank, thrift or insurance regulator; OTCQX - reserved for the securities of companies that are current in their reporting to the SEC or a U.S. bank, thrift or insurance regulator, or, in the case of companies that are not required to report to the SEC, meet and remain current in their reporting obligations to OTC Link under its proprietary Alternative Reporting Standard; meet certain eligibility requirements; have audited financial statements; and partner with a third-party securities attorney or investment bank that reviews disclosure and acts as a professional advisor; and OTC Pink - an open marketplace for a broad spectrum of equity securities, with no financial standards or reporting requirements.

Microcap Stock: A Guide for Investors

FROM Sec.gov Sept. 18, 2013

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1. "Penny Stock Rules". United States Securities and Exchange Commission. 2008-04-04. Retrieved October 18, 2012. 2. Mob-Busting Informant Resurfaces in SEC Probe – WSJ 3. Inside One of the U.S.'s Biggest-Ever Investment-Fraud Stings – WSJ 4. Trusted Criminals: White Collar Crime In Contemporary Society – David O. Friedrichs – Google Books 5. "Penny Stock". Investopedia. Retrieved 30 March 2012. 6. Former Mob Snitch All But Indicted | Huffington Post 7. SEC (2005-01-11). "Pump&Dump.con". U.S. Securities and Exchange Commission. Retrieved 2006-11-21.

References

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