DEFINITION of 'Cats And Dogs'

Cats and dogs is a slang term referring to speculative stocks that have short or suspicious histories for sales, earnings, dividends, etc. The origin for this term may have stemmed from the use of "dog" to refer to an underperforming stock. In a bull market, analysts often mention everything is going up, even the cats and dogs.

BREAKING DOWN 'Cats And Dogs'

Cats and dogs, or speculative stocks, are often called penny stocks. Investing in cats and dogs may create a large financial gain or loss in a short amount of time.

Characteristics of Cats and Dogs

Cats and dogs are offered by small companies raising equity capital. The low-priced stock shares trade infrequently over the counter (OTC) rather than on a stock exchange. Investors may have difficulty finding price quotes on these companies and their stock. The Securities and Exchange Commission (SEC) warns investors they may lose their entire investment when conducting business with these corporations.

Risks of Investing in Cats and Dogs

Obtaining reliable data and information about cats and dogs is difficult. Since the SEC regulates companies with over $10 million in assets and over 500 registered shareholders, most cats and dogs companies do not file financial statements. Con artists can easily provide investors with false information regarding these businesses.

Because cats and dogs are too small for listing on an exchange, they trade through an electronic OTC quotation system such as the Pink Sheets. Unlike major exchanges, Pink Sheets do not require full reporting, SEC filings, a minimum price or market capitalization. However, legitimate, sound companies also trade on the Pink Sheets; investors need to properly research companies before investing in them.

Cats and dogs may be sold due to fraudulent activity as part of a “pump and dump” scheme. Representatives present overly optimistic claims about a company’s prospects via email, press releases or message boards as a means of inflating the stock’s price. The claims often promise large returns for a small subscription fee. Because such stock trades infrequently, a small rise in purchase activity may cause a potentially large stock price increase. Sources of the original information sell their shares, typically at a large profit. Investors often do not recoup their losses.

Example of Cats and Dogs

VMT Scientific was a Nevada-based shell company Stephen Roebuck, a stock broker, and Daniel Kaiser, the company’s chief technology officer, took control of in 2005. After issuing 120 million shares of stock and transferring them to offshore brokerage accounts, Roebuck and Kaiser promoted the company through press releases and a website, making false claims about the company’s medical breakthrough product. They claimed the product lessened the chances of amputations brought on from complications due to diabetes. When the stock price grew over 400%, Roebuck sold 9.5 million shares for approximately $990,000. In reality, the product was nonexistent. The company had no revenue or operations and was under court custody.

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