US congressman resigns over ASX insider trading penny stock scandal

Can you make money in penny stocks?

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Headlines are being made in the US today with a Republican Congressman expected to plead guilty to insider trading charges brought by the US securities regulator the SEC.

Making the case unusual is that the micro-cap biotech in question is ASX-listed Innate Immunotherapeutics Limited (ASX: IIL).

Since the scandal it has changed its name to Amplia Therapeutics Limited (ASX: ATX) perhaps in an effort to brush the episode under the carpet. 

According to reports in The Australian newspaper congressman Chris Collins was tipped off over the phone by the Innate Immunotherapeutics CEO that clinical trial results for one of its drugs were negative.

The congressman in possession of the inside information then tipped off his own son who proceeded to sell large amounts of  shares, while tipping off other associates to run for the hills as well. 

When the negative public announcement came the stock tanked 90% lower, with a journalist named Jerry Zremski working as the Washington Bureau chief of The Buffalo News first picking up the story of suspicious activity. 

Mr Zremski even contacted ex-Motley Fool writer and amateur sleuth Sean O'Neill who had also picked up and flagged the suspicious activity as outlined in the excellent article hyperlinked. 

It was lucky for the local regulator ASIC who had the whole affair picked up for it and pursued with gusto by the feared US regulator the SEC. 

For every case of insider trading picked up (in this case Mr Collins' son's greed in selling straight away appears to have given the game away) there are almost certainly dozens or perhaps hundreds of cases that go undetected or unproven.

Out of the around 2,300 companies listed on the local market the majority fall into the small-cap or speculative buckets. 

At this end of the market even if information is not legally 'inside information' different market participants are often acting on different amounts of information. While misinformation or false representations are also a big problem for retail investors to navigate.

Regulation also cannot be relied upon as the principle of 'caveat emptor' persists.

As Julius Caesar once said; "The faultdear Brutus, is not in our stars, but in ourselves.

I would not suggest punting on speculative stocks unless you are a highly-experienced investor well informed on a particular business.  

You can find some of the more popular speccy ASX stocks across all sectors including mining, healthcare, and biotechnology.

Some popular penny stock names with punters looking to get-rich-quick include Paradigm Biopharmaceuticals Ltd (ASX: PAR), Fastbrick Robotics Ltd (ASX: FBR), Avz Minerals Ltd (ASX: AVZ), Benitec Biopharma Ltd (ASX: BLT) and Bionomics Ltd (ASX: BNO). 

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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