Investor Alert: Marijuana Stock Scams
The Financial Industry Regulatory Authority (“FINRA”) has issued an investor alert regarding scams pitching investments in marijuana-related stocks.
Currently, medical marijuana is legal in 20 states and the District of Columbia. Recreational marijuana is legal in Colorado and Washington state. With all the press surrounding the legalization of marijuana, FINRA has already seen scams involving investments in marijuana-related companies. According to FINRA, the scams it has seen are classic “pump and dump” schemes.
The fraudsters “pump” up the price of a small, thinly traded company, with little or no history of financial success, by making overly optimistic, oftentimes false and misleading, statements concerning the financial prospects and growth potential of the company. FINRA cites an example of a company that issued over 30 press releases in a short period of time indicating the stock could soon double its price. When the price of the shares reaches its peak, the scammers then “dump” all of their shares at a profit and leave the legitimate investors holding worthless stock.
The alert offers some ways to help avoid becoming the victim of investment fraud:
A copy of the FINRA Investor Alert: “Marijuana Stock Scams” can be found here.