Investors warned of penny share scams

Wednesday, 16 September 2009 12:09

Investors are being warned to avoid penny share scams.

The Financial Services Authority (FSA) is warning rogue firms are targeting older shareholders with high-pressure sales tactics.

The shares sold are not usually traded on the main stock exchanges and come with a low market price.

However, they are often very high risk and difficult to sell on.

So far this year, the FSA has ordered 11 firms in the penny share market to overhaul their businesses and prove they are no longer a risk to consumers - with six closing completely as a result.

Research finds certain stockbrokers are targeting people over 50 who already own shares - often through privatisations.

In some cases the brokers were paid commission to sell a particular share which was then aggressively marketed to consumers, regardless of whether or not it was suitable for them or not.

FSA director Lesley Titcomb said: "It is totally unacceptable to have consumers pressurised into buying shares. It is all the more disturbing when the risks of those shares have not been set out clearly.

"Our intensive supervision is setting high standards for firms to meet, and the warning to any such firm which has yet to receive a visit from us is that they should get their house in order."

She added: "Quite simply, if firms do not treat their customers fairly, they will not be operating in the market."
Consumers looking at penny shares are urged to:

• Challenge broker's advice and ask why a particular share is suitable for your particular circumstances
  
• Research and verify the broker's advice
  
• Make sure you know the risks attached to the shares
  
• Ask what commission the broker will get for arranging the sale

The FSA is also looking at the Contracts for Difference (CFDs) - where investors can speculate on the movement of share prices. However, the regulator warns they are extremely complex, and investors could lose more than their original stake.

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