Why would SEC suspend trading in penny stocks?

• The SEC has been halting trading in penny shell stocks
• Regulators are trying to curb crime before it happens
• Investors are best avoiding shell companies anyway

Q: Is it fair for the SEC to suspend trading in penny stocks?

A: Stopping crimes before they happen might sound like it's out of science fiction. But that's been an increasing goal of the Securities and Exchange Commission.

Rather than waiting for a swindler to take millions from investors, the SEC is trying to find scams in the making. And one of the most popular vehicles for scammers to separate people from their money are stocks that remain trading on marketplaces that don't have a company associated with them.

Due to the way the financial system is set up, it's possible for a public company's shares to keep trading on online marketplaces long after the company is gone. These "shell companies" are popular targets with scammers, who buy the stock, change the name, manipulate the shares and them dump the worthless stock on investors.

It's one of the oldest fraud tricks in the book and one that the SEC seems determined to curb, at least a bit. Back in 2012, the SEC shut down trading in nearly 400 microcap stocks that it said were ripe for manipulation. More recently, the SEC shut down trading in seven microcap companies. The goal is to close these shells before they fall into the hands of a scammer.

The goal of investors is to never get near any of the stocks that are to be shut down. The stocks that get tossed out are usually thinly traded shares of companies with no assets and no financial statements that don't trade on an exchange.

Investors can protect themselves from scammers by focusing on investing possibilities in companies with audited and timely financial statements that are listed on the New York Stock Exchange or Nasdaq.