More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
The Financial Industry Regulatory Authority (FINRA) issued an Investor Alert Wednesday warning investors about stock scams related to nutraceutical companies that sell fortified foods, energy drinks and “natural” medicines.
The alert, Nutraceutical Stock Scams—Don't Supplement Your Portfolio With These Companies, warns investors that "con artists behind nutraceutical stock scams may try to lure in investors with optimistic and potentially false and misleading information that in turn creates unwarranted demand for shares of small, thinly traded companies that often have little or no history of financial success."
The con artists behind these “pump and dump” scams, the alert says, can then sell off their shares, leaving investors with worthless stock.
Like many investment scams, pitches for nutraceutical stocks may arrive in a variety of ways—from cold calls to e-mail, tweets, blogs or message board posts, the alert warns.
While some nutraceutical companies are legitimate, others could be bogus operations with the potential to harm unsuspecting investors.
The alert says one company claimed to have acquired rights to “all-natural” medicines that treat maladies ranging from the common cold to kidney disease.
The company claimed it had “the potential to capture 3% of the U.S. market within a three-year period” and “potentially generate $100,000,000 in revenues,” the alert says. FINRA’s alert says that investors who took a look at the company’s unaudited financials would have found a firm with almost no cash on hand and no track record of sales.
“While nutraceuticals claim to help people become healthy, investing in some of the companies associated with these products can make investors’ portfolios sick,” said Gerri Walsh, FINRA’s Vice President for Investor Education, in a statement. “The best way investors can inoculate themselves against investment scams is to ask and check. Find out whether the promoter is licensed using FINRA BrokerCheck, and check out the investment using the Securities and Exchange Commission's EDGAR database of company filings.”