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Word Count: 350
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 smallnon-public company that has the prospects of growthThey promise its managers finanial assistance by merging it with a public company in financial troublegetting the public listing with minimal disclosure Theconmen 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 examplethe number of shares outstanding dropped from 10 millionto about 500000 which caused the stocks price to rise from 34 cents a share to nearly 700 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 stocks price When the stock price is high enough the hustlers then unload their shares employing off-shore accounts What makes this type of stock fraud often go undetectedis the fact that the conmen work through leditmatecompanies and not some sham organization By the time anyone figures out that a crime has been committed the conmenhave their money in off-shore accounts This is a good case of what happens when there are no checkson busunessmen All the stake-holders in the company that was used by the conmen lose because once it is made known what has happenedthe stock becomes worthless and a successful up and coming company is destroyed by such a stock scam Personally I believe that steps should be taken to tighten up the regulations in suchmergers so that these sorts of stock frauds can be stopped
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