By Emily Zulz
The Securities and Exchange Commission is warning investors about potential coronavirus investment scams. The SEC’s Office of Investor Education and Advocacy issued an Investor Alert that warns investors about fraudulent claims that a company’s products or services will be used to help stop the coronavirus outbreak.
“We have become aware of a number of Internet promotions, including on social media, claiming that the products or services of publicly-traded companies can prevent, detect, or cure coronavirus, and that the stock of these companies will dramatically increase in value as a result,” the alert states.
The SEC warns that these promotions may take the form of “so-called research reports” or make predictions of a specific “target price.” The SEC is urging investors to be wary of these promotions.
The SEC also warns that microcap stocks, which are low-priced stocks issued by small companies, are particularly vulnerable to any fraudulent investment scheme, including coronavirus-related scams. According to the SEC, this is because there is often limited publicly-available information about microcap companies’ management, products, services, and finances. The SEC says that this can make it easier for fraudsters to spread false information about the company and then profit at the expense of unsuspecting investors.
An example where this can happen in microcap stocks is in the classic “pump-and-dump” scheme. Promoters will increase — or “pump up” — the stock price of a company by spreading positive, and usually false, rumors. These rumors often cause many investors to purchase the stock, and then the promoters will quickly “dump” their own shares before the hype ends. Oftentimes, the stock price drops after the promoters have profited and the remaining investors lose most of their money.
“When investing in any company, including companies that claim to focus on coronavirus-related products and services, carefully research the investment and keep in mind that investment scam artists often exploit the latest crisis to line their own pockets,” the SEC states.
If you believe you have been the victim of an investment scam, contact one of our experienced securities attorneys today.
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