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FINRA Warns of Fraud Tied to Low-Priced Securities

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The Financial Industry Regulatory Authority is warning of potential fraud related to low-priced securities offerings — including those involving COVID-19- and cannabis-related businesses.

In the just-released Regulatory Notice 21-03, FINRA notes that it has observed “potential misrepresentations about low-priced securities issuers’ involvement with COVID-19 related products or services, such as vaccines, test kits, personal protective equipment and hand sanitizers.”

These misrepresentations, FINRA states, “appear to have been part of potential pump-and-dump or market manipulation schemes that target unsuspecting investors.”

The reg notice states: “Low-priced securities tend to be volatile and trade in low volumes. It may be difficult to find accurate information about them. There is a long history of bad actors exploiting these features to engage in fraudulent manipulations of low-priced securities. Frequently, these actors take advantage of trends and major events — such as the growth in cannabis-related businesses or the ongoing COVID-19 pandemic — to perpetrate the fraud.”

Firms that engage in low-priced securities business should also be aware of a recent SEC Staff Bulletin — Risks Associated with Omnibus Accounts Transacting in Low-Priced Securities — that highlights for broker-dealers various risks arising from illicit activities associated with transactions in low-priced securities through omnibus accounts, particularly transactions effected on behalf of omnibus accounts maintained for foreign financial institutions, FINRA explains.