6 Ways to Avoid a Cryptocurrency Stock Scam: FINRA

A FINRA Investor Education Foundation survey of 2,000 investors with non-retirement investment accounts found that individual stocks are the most commonly held investment nationwide.

“It can be difficult for investors to avoid the lure of the cryptocurrency markets, especially when prominent people express interest in it, and news reports and social media tout the promise of guaranteed quick fortunes and skyrocketing returns,” said Gerri Walsh, FINRA’s senior vice president for Investor Education, in a statement. “But it is important to do your research. Even when legitimate companies enter a hot, new sector, con artists almost always follow suit.”

FINRA urged investors to take the following steps before investing in any cryptocurrency-related stock:

• Exaggerated or misleading claims should be reported to the Securities and Exchange Commission, or investors should file a complaint using FINRA’s online Complaint Center or send a tip to FINRA’s Office of the Whistleblower.
• Be cautious of saying “yes” to cryptocurrency stock purchases from an aggressive cold caller, particularly if the recommended stocks are very low-priced. 
• Use FINRA BrokerCheck to verify the professional backgrounds of the individuals involved in selling the investment, as well as the firms who tout these opportunities. 
• Check the SEC’s EDGAR database for a company filing. If the company files with the agency, read the reports and verify any information you have heard about the company. However, just because a company has registered its securities or filed reports with the SEC doesn’t mean it will be a good investment.
• Be wary of stocks with huge spikes in price. Steep run-ups in price could signal potential manipulation or fraud.
• Know where the stock trades and pay attention to any cautions associated with the stock. Most stock pump-and-dump schemes tend to be quoted on an over-the-counter (OTC) quotation platform like OTC Markets, which provides icons to warn investors of concerns associated with a given company. These include a stop sign or skull and crossbones to warn of questionable practices.

— Check out Crypto Mania Rages With Bankruptcy, Stock Suspension, ETF Plan on ThinkAdvisor.