Question about Penny Stocks

[TromboneAl]

In my current book, a character reads the mind of someone, and gets information about a company that is about to be acquired.

It's a penny stock, and in this case it's value is 1 cent.

The mind reader knows that the stock price will jump dramatically the next day.

I'd like to have him purchase $10,000 worth of the stock, but I'm guessing that's not possible (too many shares). Is that correct?

How many shares could he likely purchase?

I'm basing the the jump in stock price on this story:

Gateway Industries is a success story spawned by a black swan event. Gateway Industries "provides database management services and Website design and maintenance for national not-for profit, healthcare and publishing entities." The company traded for 1 cent a share and was not known to be an extraordinary firm, even within the penny stock market. The company had one employee, its CEO, Jack Howard, and did not seem to be particularly special.

However, on Feb. 11, 2011 it was announced that Robert F.X. Sillerman would be acquiring Gateway Industries. The announcement was completely unexpected. Robert F.X. Sillerman, a world famous media entrepreneur, needed a company such as Gateway Industries in order to fulfill his vision of facilitating interaction between television viewers and shows. The effect was instantaneous: Gateway Industries' stock immediately jumped over 20,000% to $2.97 a share, a move based on Sillerman's reputation alone.

Read more: 4 Of The Most Shocking Stock Increases and Falls 4 Of The Most Shocking Stock Increases and Falls
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[Free To Canoe]

Al,


How are you?


Not too many shares. Only a million. I have done the same in real life. Have to go to special brokers (at least in the past) or the fees are in the $100s of dollars per.


Mark

 

[GravitySucks]

I'm sure your character could find a penny stock with a million shares available.
Here's one http://finance.yahoo.com/q?s=REDG


Sent from my iPad using Early Retirement Forum

 

[Fermion]

Plenty of penny stocks where you can buy 100,000 or 200,000 shares at a pop.

I bought 100,000 shares of a mining stock that was $0.12 and sold when it rebounded to $0.22 (now it is $0.55 )

 

[TromboneAl]

Perfect, thanks!

Here's another question: The guy buys a million shares, and then the next day the company is acquired and the stock jumps.

Is the SEC going to start an investigation, since it would look so much like insider trading?

 

[Fermion]

Perfect, thanks!

Here's another question: The guy buys a million shares, and then the next day the company is acquired and the stock jumps.

Is the SEC going to start an investigation, since it would look so much like insider trading?

If he is not a member of Congress, he could be in trouble.

 

[FIREd_2015]

Perfect, thanks!

Here's another question: The guy buys a million shares, and then the next day the company is acquired and the stock jumps.

Is the SEC going to start an investigation, since it would look so much like insider trading?

Sometimes facts are stranger than fiction. NCSS was a stock trading at a low of around 5 cents back in 2000-2001. An investor buys a total of 814,700 shares priced between 12-50 cents. Investor accidently gets a draft copy of merger documents because his name was the same as someone else on the board of NCS. The merger resulted in the shares being worth about $5.25/sh. Here is the link to the SEC filing: http://www.sec.gov/Archives/edgar/data/935886/000095015202005721/l95606asc13d.txt

 

[kcowan]

I think any SEC liability would depend on the traders previous trading activity and how much of the float this $10k represented. I know there are people who can act as surrogates for a small fee.