Microcap Fraud – Issues and Implications

By Ellen Zimiles and Eric Barefield, Guidehouse

Microcap companies and transactions related to their securities pose a particular anti-money laundering (AML) risk to broker-dealers and investors. Microcap fraud is dependent on the proliferation of false information. Many microcap companies do not issue quarterly and annual reports to the public. The lack of reliable, readily available information and the fact that most microcap securities are thinly traded makes it easier to manipulate a microcap stock, which increases the risk of fraud to investors.  Firms can be used to facilitate both manipulations and unregistered distributions of securities. Broker-dealers with customers who buy and sell microcap securities must have policies, procedures, and internal controls in place to detect and prevent microcap fraud, market manipulation, and the unlawful distribution of unregistered securities (FINRA 09-05). How can financial institutions mitigate the risks associated with microcap fraud?

In the new paper Microcap Fraud – Issues and Implications, Guidehouse experts explain the risks related to microcap fraud, examine recent enforcement trends, and provide recommendations and next steps for addressing these issues.

Click here to download Microcap Fraud – Issues and Implications

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