What if I Want to Invest in Microcap Stocks? To invest wisely and avoid investment scams, research each investment opportunity thoroughly and ask questions. These simple steps can make the difference between profits and losses: Find out whether the company has registered its securities with the SEC or your state's securities regulators. Make sure you understand the company's business and its products or services. Read carefully the most recent reports the company has filed with the SEC and pay attention to the company's financial statements, particularly if they are not audited or not certified by an accountant. If the company does not file reports with the SEC, ask your broker if she has any information on the company: she may have a 'Rule 15c2-11 file' containing basic facts about the company. However, in reviewing the Rule 15c2-11 file, it is also important to keep in mind that this information may have become inaccurate or out-of-date, and your broker is not responsible for ensuring that the information in the file remains accurate and timely. Check out the people running the company with your state securities regulator, and find out if they've ever made money for investors before. Also ask whether the people running the company have had run-ins with the regulators or other investors. Make sure the broker and his or her firm are registered with the SEC and licensed to do business in your state. FINRA maintains a BrokerCheck website at http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm where you can check the professional background of individual brokers and firms, as well as investment adviser firms and representatives. We've spelled out the questions you'll need to ask in the following publications: Internet Fraud and Ask Questions. When you ask these questions, write down the answers you received and what you decided to do. Let your broker or investment adviser know you're taking notes. They'll know you're a serious investor and may tell you more - or give up trying to scam you. We've developed a form for taking notes at http://www.sec.gov/complaint/callform.htm to help you. You'll find these and other useful publications on the Office of Investor Education and Advocacy section of the SEC's website or from our toll-free publications line at (800) SEC- 0330. Also, watch out for these "red flags": SEC Trading Suspensions  The SEC has the power to suspend trading in any stock for up to 10 days when it believes that information about the company is inaccurate or unreliable. Think twice before investing in a company that's been the subject of an SEC trading suspension. You'll find information about trading suspensions on the SEC's website. Assets Are Large But Revenues Are Small  Microcap companies sometimes assign high values on their financial statements to assets that have nothing to do with their business. Find out whether there's a valid explanation for low revenues, especially when the company claims to have large assets. Odd Items in the Footnotes to the Financial Statements  Many microcap fraud schemes involve unusual transactions among individuals connected to the company. These can be unusual loans or the exchange of questionable assets for company stock that may be discussed in the footnotes. Unusual Auditing Issues  Be wary when a company's auditors have refused to certify the company's financial statements or if they've stated that the company may not have enough money to continue operating. Also question any change of accountants. Insiders Own Large Amounts of the Stock  In many microcap fraud cases - especially "pump and dump" schemes - the company's officers and promoters own significant amounts of the stock. When one person or group controls most of the stock, they can more easily manipulate the stock's price at your expense. You can ask your broker or the company whether one person or group controls most of the company's stock, but if the company is the subject of a scam, you may not get an honest answer. Additional Red Flags  Don't deal with brokers who refuse to provide you with written information about the investments they're promoting. Never tell a cold caller your social security number or numbers for your banking and securities accounts. And be extra wary if someone you don't know and trust recommends foreign investments. For more tips on avoiding danger, be sure to read Cold Calling - Know Your Rights and The Fleecing of Foreign Investors: Avoid Getting Burned by "Hot" U.S. Stocks.. What If I Run Into Trouble? Act promptly! By law, you only have a limited time to take legal action. Follow these steps to solve your problem: Talk to your broker and explain the problem. What happened? Who said what, and when? Were communications clear? What did the broker tell you? Did you take notes about what your broker said at the time? If so, what do your notes say?   If your broker can't resolve your problem, then talk to the broker's branch manager.   If the problem is still not resolved, put your complaint in writing and send it to the compliance department at the firm's main office. Explain your problem clearly, and tell the firm how you want it resolved. Ask the compliance office to respond to you in writing within 30 days.   If you're still not satisfied, then send a letter to your state securities regulator and attach copies of any letters you've sent already to the firm. Or send your complaint to the SEC using our online complaint form at http://www.sec.gov/complaint/select.shtml. We will forward your complaint to the firm's compliance department and ask that they look into the problem and respond to you in writing. Please note that sometimes a complaint can be successfully resolved. But in many cases, the firm denies wrongdoing, and it comes down to one person's word against another's. In that case, we cannot do anything more to help resolve the complaint. We cannot act as a judge or an arbitrator to establish wrongdoing and force the firm to satisfy your claim. And we cannot act as your lawyer.

Microcap Stock: A Guide for Investors

FROM Sec.gov Sept. 18, 2013

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