The idea of penny stocks is simple: buy an existing shell company (no assets) for practically nothing, issue millions of new shares, give a bunch of them for free to yourself and other promoters and then sell the balance to the public via boiler room operations (the guys who call you during dinner). When the price goes from, say, $0.05 to $3.00, everyone who’s in on the scam dumps their shares and quits pumping, whereupon the artificially inflated price returns to its actual value: zero.
There’s absolutely nothing new about this plan; my own Dutch ancestors probably sold worthless shares of crud to Fudrucker’s relatives, newly arrived from Ireland, so it’s doubly disappointing that Governor Pataki would choose to enrich himself this way. Al D’Amato, who abused his Senate position as Banking Czar to keep the boiler room operation, Stratton Oakmont, alive for years, was always known to be a crook. I’d thought, naively obviously, that Pataki was a better man.