Awesome Penny Stocks Case Study: Rise and Fall of Penny Stock Firm!

Awesome Penny Stocks

Everyday thousands of awesome penny stocks companies enter the micro cap market. Nobody knows how many of them will rise or fall as our case study shows below. Some of them will prove to become a case study material on how to make money with penny stocks while others will go down taking the money of their investors with them.

According to Peter Leeds, the author of “Penny Stocks for Dummies,” even seemingly prosperous blue chip companies like Enron which at some point was trading at $90 per share fell down to $0.2 in a matter of months and became a penny stock. During its best times Enron was one of the largest companies in the United States with nothing predicting its demise. So what went wrong with a former giant Enron and what can be learnt form this case study? Enron used faulty financial reporting to overstate their assets and understate liabilities resulting in a disastrous bankruptcy and thousands of people losing their fortunes.

Investing in penny stocks is a very risky enterprise especially if you are dealing with companies that provide very little disclosure about their management, assets, future goals and rarely, if ever file financials with Securities and Exchange Commission (SEC). Most companies trading as awesome penny stocks are either start up enterprising, those heading to or recovering from bankruptcy or obscure businesses with very little known about them. With penny stock risks so high, it is no wonder that so many of them have become the perfect case study material.

One of the classical examples of a penny stock company that has reached great heights and fell in complete demise was Bre-X Minerals, Ltd., a subsidiary of a Canadian Company Bresea Resources, Ltd. founded in late 1980’s. It became the subject of the largest gold mining scandal in penny stock history and an example of how even awesome penny stocks can rise and fall and there is very little investors can do but to take a loss and move on.

Here is the story of how Bre-X Minerals’ awesome penny stocks rose and fell a victim to faulty business practices. Bre-X Minerals did not show significant profits but in 1993 led by the advice of a geologist John Felderhof purchased a property in the middle of Borneo jungle in Indonesia. According to the initial geological report, the property was estimated to carry about 2 million troy ounces of gold. Interestingly, the number kept going up in 1995 reaching 30 million troy oz followed by the 1997 estimation report of 70 million troy ounces. With gold mining prospects of this scale, Bre-X minerals awesome penny stocks were growing like yeast dough heated by massive media coverage and hundreds of penny stock brokerage firms jumping on them.

If we say that some penny stock traders made fortunes on just Bre-X alone, we are not going to say anything. Some savvy investors turned their few hundreds of dollars into millions within a short time period; they were rewarded for not staying with the company for the long haul. What other investors who were betting on long term haul did not know is that the initial core samples were tampered with by the process of salting. Normally ground samples are rinsed before being analyzed for potential gold deposit samples. Those samples were actually sprinkled with alluvial gold found not in the ground but in the nearby river creating claims without any truth behind. To provide a reference regarding how fast these awesome penny stocks grew, in 1991 the company’s penny stocks were trading for $0.04 CAD and in a matter of time, as the gold prospecting news were being published, the awesome penny stocks from Bre-X reached their all time high of $286.50 per share. Initially, the stocks were traded exclusively on Canadian stock exchange and later interlisted on the US market. Needless to say, this sent penny stock brokers in a buying frenzy for their clients.

The investors who purchased the stock at its lowest and sold them just as the stocks started coming down in price made the most money. The unfortunate investors who got in when the prices were at the highest took the biggest hit. 1997 was a year when the awesome penny stocks took a turn for the worst when the company’s chief geologist Michael Guzman jumped from the plane flying over the Indonesian jungles. The scandal started unfolding uncovering the dirty truth behind the tampered samples. The subsequent gold core testing found very insignificant gold deposits in the area leading to an epic fall of the Bre-X Minerals stock. Criminal fraud case was later filed but nobody was actually charged on any grounds. To this day Bre-X Mining Fraud is considered the largest fraud in Canadian gold mining history.