The SEC’s Office of Investor Education and Advocacy (OIEA) and the Division of Enforcement’s Retail Strategy Task Force are issuing this Alert to educate Main Street investors about current investment frauds, including scams related to the Coronavirus (COVID-19) pandemic.
Fraudsters often seek to use national crises and periods of uncertainty to lure investors into scams. They may play off investors’ hopes and fears, as well as their charity and kindness, and may try to exploit confusion or rumors in the marketplace.
Like the rest of the SEC, the Division of Enforcement continues to execute on its mission of protecting investors and remains fully operational. The agency is actively monitoring our markets for frauds, illicit schemes and other misconduct affecting U.S. investors relating to COVID-19—and as circumstances warrant, will issue trading suspensions and use enforcement tools as appropriate. Still, we urge you not to let your guard down when it comes to spotting fraudulent investment schemes—including those masquerading as charities or targeting specific groups of people. Below are a few frauds Main Street investors should be especially wary of during this time.
You can also help others by reporting possible securities fraud to the SEC. We strongly encourage anyone who becomes aware of possible securities fraud to report the activity using the SEC’s online tip, complaint, and referral (TCR) system at https://www.sec.gov/tcr.
Protect Yourself from Investment Fraud Relating to COVID-19.
As you navigate the COVID-19 pandemic, don’t overlook the importance of protecting yourself and others from investment scams. Many investment frauds involve unlicensed individuals or unregistered firms, so verify that the seller is currently registered or licensed using the free and simple search tools on Investor.gov. Also, look out for promises of guaranteed high investment returns and unsolicited investment offers. Learn more about these red flags and others at the Investor.gov webpage How to Avoid Fraud.
If you are considering investing in a company, especially in a microcap or penny stock, be skeptical of claims that products or services can prevent, detect, or treat COVID-19, or help to solve issues resulting from the current pandemic.
We have become aware of a number of stock promotions, including online and through unsolicited phone calls, claiming that products or services of publicly-traded companies can prevent, detect, or cure COVID-19, and that the stock of these companies will dramatically increase in value as a result.
Contact the Food & Drug Administration (FDA) if you have questions about FDA involvement with, or approval of, specific products and services.
Wrongdoers may promote rumors on social media, as well as on online bulletin boards and in online chat rooms. Claims also might concern companies converting operations to COVID-19-related support, or legislative stimulus packages and related industries that supposedly benefit from the current crises. You may lose a lot of money if you invest in a company based on inaccurate or unreliable claims or rumors.
False claims about a company’s products and services are sometimes part of a “pump-and-dump” scheme where fraudsters profit at the expense of unsuspecting investors. Microcap stocks may be particularly vulnerable to pump-and-dump schemes because there is often limited publicly-available information about microcap companies’ management, products, services, and finances as well as limited institutional interest in those companies. This can make it easier for fraudsters to spread false information about the company and move the price of the stock to take advantage of the public.
SEC Trading Suspensions. SEC staff actively monitors trading activity, and the SEC can suspend trading in any stock for up to 10 days when it believes that information about a company is inaccurate or unreliable. Investors who own stock in a company subject to a trading suspension may be unable to sell their shares until the trading suspension is lifted, or even after. Investors should keep this possibility in mind when deciding whether to purchase the stock of a company. Recent trading suspensions issued in connection with coronavirus/COVID-19 include:
- Custom Protection Services, Inc. (5/5/2020)
- CNS Pharmaceuticals Inc. (5/1/2020)
- Moleculin Biotech, Inc. (5/1/2020)
- WPD Pharmaceuticals, Inc. (5/1/2020)
- Nano Magic Inc. (4/30/2020)
- Kleangas Energy Technologies, Inc. aka CaliPharms, Inc. (4/27/2020)
- Decision Diagnostics Corp. (4/23/2020)
- Predictive Technology Group, Inc. (4/21/2020)
- SpectrumDNA, Inc. (4/21/2020)
- SCWorx Corp. (4/21/2020)
- PreCheck Health Services, Inc. (4/16/2020)
- Bravatek Solutions, Inc. (4/15/2020)
- BioXyTran, Inc. (4/15/2020)
- Signpath Pharma, Inc. (4/15/2020)
- Applied BioSciences Corp. (4/13/2020)
- Arrayit Corporation (4/13/2020)
- Solei Systems, Inc. (4/10/2020)
- Roadman Investments Corp. (4/10/2020)
- Parallax Health Sciences, Inc. (4/10/2020)
- Turbo Global Partners, Inc. (4/9/2020)
- BioELife Corp. f/k/a U.S. Lithium Corp. (4/8/2020)
- Key Capital Corporation (4/7/2020)
- Prestige Capital Corp. (4/7/2020)
- Wellness Matrix Group, Inc. (4/7/2020)
- Sandy Steele Unlimited Inc. (4/3/2020)
- No Borders, Inc. (4/3/2020)
- Praxsyn Corporation (3/25/2020)
- Zoom Technologies, Inc. (3/25/2020)
- Eastgate Biotech Corp. (2/24/2020)
- Aethlon Medical, Inc. (2/7/2020)
Under the federal securities laws, a company may not offer or sell securities unless the transaction has been registered with the SEC or an exemption from registration applies. Many legitimate companies use unregistered offerings to raise funds from investors. Fraudsters, however, may also use unregistered offerings to conduct investment scams.
Be wary of promises of high investment returns with little or no risk, unregistered professionals, aggressive sales tactics, and other red flags. Be particularly vigilant of fraudsters taking advantage of the volatile markets to tout “safe” or “bottomed out” investments in companies that purportedly have interests in commodities such as gold, silver, or oil and gas, for example. Before you hand over your money, research the investment and ask questions. Learn more in our Investor Alert, 10 Red Flags that an Unregistered Offering May be a Scam.
If you are considering an investment relating to the COVID-19 pandemic, check if it is registered with the SEC by using the SEC’s EDGAR database or contacting the SEC’s toll-free investor assistance line at (800) 732-0330.
Many organizations currently offer opportunities to help those most affected by the COVID-19 pandemic. Fraudsters may try to exploit your desire to help others by using charitable causes as a hook for investment schemes. For example, they may pretend that your investment will provide financial support or medical treatment to people in need as a result of the COVID-19 pandemic and then steal your money instead.
If you are considering participating in an investment offered by a charity that claims to be a tax-exempt or “501(c)(3)” organization, check out the organization’s tax status on the Tax Exempt Organization Search on the Internal Revenue Service’s website. If a so-called charitable organization is not listed, and has misrepresented that it is tax-exempt, do not invest in the organization. Even if a charity has 501(c)(3) status, this does not mean the investment is a legitimate opportunity – it still could be part of a fraudulent scheme. Ask questions and independently research the organization to find out as much as you can.
Community-based financial frauds, also called affinity frauds, target members of identifiable groups, including people with common ties based on ethnicity, nationality, religion, sexual orientation, military service, and age. These scams exploit the trust and friendship that exist within groups.
Fraudsters may be (or pretend to be) part of the very group they are trying to cheat. They may enlist group leaders to spread the word about the scheme. Those leaders may not realize the “investment” is actually a fraud, which means they too may be victims.
Know who you are dealing with and know what they are selling—even if you have something in common with the person. Type the person’s name into the search box on Investor.gov to do a background check on anyone offering or selling you an investment.
During periods of market volatility, many investors may seek investments they feel are safer and less subject to risk and price fluctuation, such as financial products with fixed-rate returns. We are aware of current fraudulent promotions of phony Certificates of Deposit (CDs) through internet advertising and “spoofed” websites – websites that mimic the actual sites of legitimate financial institutions. Spoofed websites may use URL addresses similar to those of legitimate firms’ websites, or use legitimate-sounding names and URLs.
Spoofed websites selling fake CDs may offer high interest rates with no penalties for early withdrawals, promote only CDs (and no other financial products), require high minimum deposits, direct investors to wire funds abroad or to an account with a different name than the listed financial institution, claim the deposits are FDIC-insured, and identify “clearing partners” purportedly registered with the SEC.
Investors should be extremely cautious when purchasing CDs from websites they find through internet searches. If you are considering an investment in CDs, consider these tips to help you avoid bogus CD scams.
The U.S. Department of the Treasury issued an alert regarding possible scams involving claims of COVID-19 related grants or stimulus payments.
The Financial Industry Regulatory Authority, Inc. (FINRA) issued Fraud and Coronavirus (COVID-19).
The North American Securities Administrators Association (NASAA) issued COVID-19-Related Investment Schemes Anticipated.
Visit Investor.gov, the SEC’s website for individual investors.
Report possible securities fraud to the SEC.
This Alert represents the views of the staff of the Office of Investor Education and Advocacy and the Retail Strategy Task Force. It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”). The Commission has neither approved nor disapproved its content. This Alert, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.
Disclaimer: The information provided in this article was published by the U.S. Securities and Exchange Commission on April 10, 2020 and was updated on May 6, 2020. This information is provided to our clients and other friends for educational purposes only. CrowdEngine is not guaranteeing any information as reliable or accurate, and that it’s subject to change at any time. It should not be construed or relied upon as legal advice. Please contact your lawyer with respect to any of the matters discussed here.
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