Get out while the gettin' is good.

Many of the nation's "penny stock" firms are closing their doors. They're running away from tougher federal regulations, their own bad reputations and a sluggish economy.Stuart-James Co., the nation's biggest broker of low-priced stocks selling for $5 or less per share, recently pulled out of the securities business. Earlier this year, another penny stock giant, Blinder Robinson & Co., sought Chapter 11 bankruptcy protection.

According to the Securities and Exchange Commission, the number of securities firms offering these equities has dwindled from 337 to 255 over the past two years. At the same time, overall commissions at penny stock firms tumbled 34 percent.

There is a need for a market to promote capital formation for small companies. In addition, some people have made money from selected penny stocks. However, as this column has pointed out many times, these high-risk issues have often been subject to manipulation. That's because few shares are available and there has traditionally been little information concerning the companies.

Ruthless promoters often charge enormous markups. High-pressure "cold call" sales techniques, in which sales people phone folks out of the blue based on subscription lists, have been common. Always a crap shoot, the penny stock market has allowed crooks to prey upon the uninformed and elderly.

"I worked as a penny stock broker during college and didn't have financial or historical data for most of the stocks I sold," recalls one former broker from New Jersey. "One stock I sold to a clergyman collapsed altogether and I found that, contrary to what my underwriting department had told me, the whole thing was a complete scam that didn't exist."

Everyone familiar with the securities industry knew about these problems for years, but only recently has the government acted. First came the penny stock cold-calling rule, which went into effect the beginning of this year. It requires that the broker obtain personal financial information from you and that you sign a statement verifying those facts. The broker must also give you in writing the identity and quantity of the security offered, and obtain your signed purchase approval.

"Few of the people who bought penny stocks in the past have been sophisticated enough to understand the stocks and the risks involved so they could make a sound investment decision," said Joseph Goldstein, head of the SEC's penny stock task force. "Most of the stocks which are manipulated are dominated and controlled by one market maker and, if it goes out of business, the stock goes in the tank."

More recently, legislation signed into law this fall expands the SEC's regulatory powers over penny stocks. Rules will be formulated and adopted by the SEC over the next year and a half by which brokers must disclose to investors greater information about both the transaction and commissions. They will also have to provide a monthly statement to the investor on the status of his stock.

In addition, there will be development of an automated quotation system (the National Association of Securities Dealers this year already started up a pilot-project electronic "Bulletin Board" of low-priced stocks). So-called "blank check" stock offerings, involving start-up companies with no specific business plan or purpose, will also be reined in.

"I believe that all these regulatory changes will make the marketplace a more credible one for penny stocks," said William Schief, vice president in the NASD compliance division. "However, there will always be some problems, for start-up companies have no business history and by their nature are speculative."

What do the remaining penny stock brokerage firms think of the new regulations?

"My guess is that the requirements, by virtue of all the paperwork required, may be the last nail in the coffin for the market in stocks costing $1 or less," said Kevin Wood, acting president of Denver-based Malone & Associates Inc., which sells penny stocks.

If you decide to invest, realize the risks.