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A Short Essay For A Intro To Bussiness Class
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A Short Essay for a Intro to Bussiness Class
In the October 14th issue of Businessweek there is an article entitled "Cavwat Entrepreneur" by Michelael Schroeder. This artical details how modern day stock fraud scams are committed and it details one such example. In brief, the conmen target a small, non-public company that has the prospects of growth. They promise its managers finanial assistance by merging it with a public company in financial trouble, getting the public listing with minimal disclosure. The conmen pump in money, aquiring ventures, while taking control by placing cohorts on the board of directors. They then do a reverse stock split to boast the stock price and reduce the number of shares (in the example the number of shares outstanding dropped from 10 million to about 500,000, which caused the stock's price to rise from 34 cents a share to nearly $7.00 a share). Then the board of directors quietly issued millions of additional shares, which they and the conmen snapped up, registering the shares through SEC loopholes. Next they get brokers to push customers to buy the stock, which increases the stock's price. When the stock price is high enough, the hustlers then unload their shares, employing off-shore accounts to hide the profits. What makes this type of stock fraud often go undetected is the fact that the conmen work through leditmate companies and not ...
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