With all the news lately surrounding medical marijuana and different states starting to legalize the use of it medically and/or recreationally, scammers are yet again using the latest news to line their own pockets with some cash.
The Financial Industry Regulatory Authority (FINRA) issued an alert to investors yesterday regarding bold moves these fraudsters are doing to get investors to buy stock in marijuana. Fraudsters tend to catch potential investors by pitching a story about a small up and coming company (that may be even non-existent) whose marijuana stock will skyrocket soon. Well, if enough people do get in on the scheme the stock price may actually soar, at which point the scammers will quickly sell their shares. This will end up dropping the price of the stock dramatically, essentially making the stock worthless. FINRA notes this scheme as a “pump and dump” tactic.
Some tips FINRA shares in the alert to not fall for this scheme (and others like it) include:
· Ask: “Why me?” Why would a total stranger tell you about a really great investment opportunity? The answer is there likely is no true opportunity. In many scams, those who promote the stock are corporate insiders, paid promoters or substantial shareholders who profit handsomely if the company’s stock price goes up.
· Consider the source. It’s easy for companies or their promoters to make exaggerated claims about lucrative contracts, the company’s revenue, profits or future stock price. Be skeptical about companies that issue a barrage of press releases and promotions in a short period of time. The objective may be to pump up the stock price. Likewise, be wary of information that only focuses on a stock’s upside with no mention of risk.
· Do your research. Search the names of key corporate officials and major stakeholders, as well as the company itself. Proceed with caution if you turn up recent indictments or convictions, investigative articles, corporate name changes or any other information that raises red flags. For example, the CEO of one thinly traded, yet heavily touted, company that purports to be in the medical marijuana business spent nine years in prison for operating one of the largest drug smuggling operations in U.S. history. The former CEO of a similar company was recently indicted for his role in a multi-million dollar mortgage-based Ponzi scheme. Check the Federal Bureau of Prisons Inmate Locator to determine if a solicitation is coming from someone who has served time in a federal prison. Many states also have similar prisoner locator systems.
· Check out the person selling the stock or investment. A legitimate investment salesperson must be properly licensed, and his or her firm must be registered with FINRA, the SEC and a state securities regulator—depending on the type of business the firm conducts. To check the background of a broker or investment adviser, use FINRA’s BrokerCheck. You can also call your state securities regulator. When using BrokerCheck, research the name of the person who contacted you, as well as the name of the firm they claim to work for. Verify the caller’s identity using the phone number on the firm’s website or in a publicly available telephone directory.
Read the full alert and the rest of the tips from FINRA.
To learn more about how to avoid investment scams and fraud, and to find the next free BBB Smart Investing workshop in your area, visit the BBB Smart Investing site.