By Jonathan Erbe
Historically scam artists have attempted to exploit the public’s concern toward health and societal predicaments. Fraudulent companies and scam artists take advantage of ill-informed investors who fail to catch the red flags of investment fraud. More recently, it is important for investors to protect themselves from investment scams seeking to profit from the public’s push to combat the Zika virus by doing their part to inquire into the source and validity of a company’s claims to be linked to the Zika industry.
Recently, the Securities and Exchange Commission (SEC) has issued an alert, warning investors that the recent “Zika crisis may give rise to investment scams.” The SEC’s Office of Investor Education issued the alert, warning of the potential risk of scams to investors due to the possibility of companies falsely reporting an association to products and services used to combat the Zika virus. The Financial Industry Regulatory Authority (FINRA) also shared this alert on its site, providing excellent tips to avoid a scam. The SEC and FINRA recommend extensively researching the issuer, its claims, and the security itself in order to avoid a potential scam.
The SEC and FINRA suggest that investors:
- Heavily scrutinize any potential investments purporting to have a connection to the Zika virus industry. To obtain information on Zika treatments and products, investors should visit the Center for Disease Control, Food and Drug Administration, and other health and drug institutions’ websites to verify the information circulated by the issuer. Note whether the recommending company has been the recipient of SEC disciplinary action. To verify whether a particular offering is even registered with the SEC, use the EDGAR database found at https://www.sec.gov/edgar.shtml. If the offer is not registered with the SEC, check to see if it is registered with the state’s securities regulator.
- Be suspicious of unregistered investment professionals, as these are more often than not associated with a fraudulent entity promoting a scam. To check the registration status of an individual or company recommending any type of investment it is best to use the SEC’s Investment Advisor Public Disclosure database, available at investor.gov.
- Be wary of false information and companies, or individuals, promising high returns with no risk. All forms of investment carry a degree of risk. A high return has a strong correlation to higher risks, necessary to earn the possibility of such a return.
- Finally, it is important to be vigilant against unsolicited electronic communications making such promises, especially if such communications suggest that the information is only be provided to a select group of investors. Particularly with Zika investments, be aware of the fraudulent technique referred to as a “pump and dump.” This involves a fraudulent circulation of positive rumors to inflate a stocks value and entice buyers. However, these values rapidly depreciate after the rumors are dispelled and the promoters of the rumors “dump” their stock, leaving investors with worthless shares.
You can view the full alert issued by the SEC here.