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Penny Stocks: Regulatory Actions to Reduce Potential for Fraud and Abuse

GGD-93-59 Published: Feb 03, 1993. Publicly Released: Feb 03, 1993.
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Highlights

GAO reviewed the National Association of Securities Dealers' (NASD) efforts to reduce fraud and abuse in the penny stock market, focusing on: (1) increased NASD market regulation; (2) NASD implementation of new information collection and dissemination systems; (3) NASD coordination of enforcement activities with other federal and state authorities; and (4) penny stock brokers' sales practices.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
United States Securities and Exchange Commission The Chairman, SEC, should require NASD to provide public investors who request information via the NASD toll-free phone service with information on final arbitration awards.
Closed – Implemented
On July 1, 1993, SEC adopted an NASD rule change to begin providing the expanded toll-free phone service and provide arbitration award information.
United States Securities and Exchange Commission The Chairman, SEC, should require NASD to develop a plan for examining the branch offices of penny stock broker-dealers in all NASD districts that includes a sampling plan to identify high-risk branches, establishes the frequency of examinations, and determines the number of employees required to examine branches.
Closed – Implemented
NASD is preparing a branch office examination program to be submitted to SEC in late 1993 for review and comment. According to Ms. Judith Poppalardo, Assistant Director, SRO Inspections, SEC, the branch office examination criteria has been incorporated into NASD examination procedures.

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Topics

Financial Markets and Institutions
Brokerage industrystate relationsInformation systemsSecurities fraudSecurities regulationStock exchangesStocks (securities)SecuritiesPenny stocksDispute settlements