Watered Stock is an illegal scheme to defraud investors by offering shares at deceptively high prices. Watered stock is issued at a higher value than it is actually worth; it is accomplished by overstating the firm's book value. This makes the company look more successful and attractive to potential investors, who are then willing to pay more for the stock. However, once these investors realize that they have been deceived, they often lose confidence in the company and may even suffer financial losses.Watered stock schemes can be difficult to detect, but there are some red flags that may indicate that a company is engaging in this type of fraud.For example, if a company's share price suddenly increases without any news or announcements about improved performance, this could be cause for concern.Additionally, if insiders start selling their shares shortly after an issuance of new stock, this could also be indicative of watered stock fraud.
