Regulators say reliable public information about microcap companies is often scarce.
Lack of public information opens the door for scam artists who can make false and exalted claims about a company, regulators say. Because there's no broad interest to fuel the trading volume of microcap stocks, the stocks are susceptible to price manipulation. In a typical scheme, a brokerage firm will use an army of cold-calling brokers to pump up the price of a stock. The brokers will use high-pressure sales tactics, often lying about the company. Brokers may ignore customer sell orders to restrict the supply of the stock and pump up its price.