The Feds have shut down trading of seven different firms and have filed criminal charges against the companies’ executives, their lawyers and the stock promoters that I and others try to warn you about from time to time. They are accused of using fraud to incite others to invest in penny stock companies.

The charges were the result of an investigation that has been going on for the last year by the U.S. Attorney’s Office out of Boston. As most of you know, penny stocks are companies that are traded and have a share price of less than $5. The investigation, however, focused on those stocks that traded over the counter rather than those that traded on a major exchange such as, the New York Stock Exchange or the NASDAQ.

During the investigation, undercover FBI agents posed as representatives from an investment fund. Those that have been arrested (13 people from 10 different states) are accused of agreeing to paying kickbacks to the agents in exchange for the make believe firms buying stock in their companies. Those that have been charged have been charged with mail fraud, conspiracy to commit securities fraud and wire fraud.

The SEC also suspended the seven firms that participated in the penny stock scheme. The scams seek to manipulate the trading in penny stocks (or microcap stocks).

The seven firms that were suspended are 1st Global Financial Inc. of Las Vegas, Augrid Global Holdings Corp. of Houston, ComCam International Inc. of West Chester, Pa., MicroHoldings US Inc. of Vancouver, Wash., Outfront Companies based in Florida, Symbollon Corp./Symbollon Pharmaceuticals Inc. of Medfield, Mass., and ZipGlobal Holdings Inc. of Hingham, Mass.

It is about time that some of these firms are being investigated. It is quite simple to see the possibility for abuse in the penny stock world. These firms cause the price of microcaps stock to be manipulated, often at the expense of investors who might buy into the stock during an increase in price. Often these companies never return again to that price causing the investors to lose thousands of dollars.

Many of the penny stock newsletters in existence today are similar to the companies that have been investigated and charged. They receive compensation in order to recommend a particular penny stock to their readership. They dupe their readership into purchasing companies that have no prayer of succeeding.

Penny stock trading can be profitable when done with discipline and integrity. Hopefully, these fraudulent firms will be run out of business in due time.