The Securities and Exchange Commission is urging investors to be on the lookout for investment frauds related to the coronavirus, as the agency has spotted what looks to be such scams via internet and social media promotions.
The agency’s Office of Investor Education and Advocacy released an Investor Alert on Wednesday warning about investment frauds involving claims that a company’s products or services will be used to help stop the coronavirus outbreak.
“We have become aware of a number of internet promotions, including on social media, claiming that the products or services of publicly traded companies can prevent, detect or cure coronavirus, and that the stock of these companies will dramatically increase in value as a result,” the SEC’s Office of Investor Education and Advocacy said.
The promotions often take the form of so-called “research reports” and make predictions of a specific “target price,” the SEC said.
“We urge investors to be wary of these promotions, and to be aware of the substantial potential for fraud at this time,” the alert states.
Microcap stocks may be particularly vulnerable to fraudulent investment schemes, including coronavirus-related scams, the agency states, as the low-priced stocks issued by the smallest of companies often have “limited publicly available information” about their management, products, services and finances.
In a “pump-and-dump” scheme, for instance, “promoters ‘pump’ up, or increase, the stock price of a company by spreading positive, but often false, rumors.
These rumors, however, cause many investors to purchase the stock.
“Then the promoters or others working with them quickly ‘dump’ their own shares before the hype ends. Typically, after the promoters profit from their sales, the stock price drops and the remaining investors lose most of their money,” the SEC states.
The agency urges investors to carefully research investments “and keep in mind that investment scam artists often exploit the latest crisis to line their own pockets.”
Complaints and tips related to securities fraud can be reported to the SEC at https://www.sec.gov/tcr.