The Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy (OIEA) consistently hears complaints about marijuana-related investments, one of the countless “hot” industries scammers are using to take advantage of unwary targets. It recently issued a new Investor Alert to warn potential investors about the risks of market manipulation and investment fraud relating to marijuana-related investments.
One of the most common tactics used by scammers involves manipulating stock prices by spreading misleading and/or false information about the company or product in question. This is especially dangerous with penny stocks or other similar products because information about these potential investments can be much harder to find than information about larger stocks. Some red flags related to market manipulation the SEC highlighted include:
- Manufactured Press Releases: Just like with any information related to a potential investment, if a press release about a stock seems too good to be true, it probably is. Sending out these types of press releases can be a cheap and easy way to build up buzz about a specific investment, and should never be taken at face value.
- Changing Business Name or Business Plan: If, during your research into a company you are considering investing in, you discover that it has changed its business plan, industry, and/or name multiple times, then you should be wary about continuing through with your investment.
- Trading Suspension: The SEC keeps track of companies it has suspended from trading in stock. Make sure to check this list during your research into potential investments.
Fraudsters often take advantage of the latest hot topic in the media, and the consistent buzz around the growing legalization of marijuana across the United States can give additional easy promotion for their latest scams. Some things to keep an eye out for include:
- Unsolicited Investment Opportunities: These types of solicitations should always be considered with a grain of salt. Whether you receive the information via phone call, text, e-mail, over social media, etc., this is a common tactic used by scammers looking to take advantage of unsuspecting targets.
- Guarantees of Returns: There is no such thing as a “guaranteed investment” in the investment world. Anyone promising a return on your investment, especially if it’s a guaranteed high rate of return, is likely promoting a scam.
- Unregistered or Unlicensed Sellers: Always conduct a thorough background check on the person selling or recommending an investment. The more you know about their history, license, and registration – or lack thereof – will help you make a more informed decision and better protect your money from scammers.
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