The United States Securities and Exchange Commission (SEC) is warning investors about possible scams from coronavirus-related investment platforms.
The financial regulator claims it first becomes aware of such scams on social media. Such scams try to entice investors with claims that company stocks will increase in value once a cure to the virus is discovered.
In its statement, the SEC said: “Fraudsters often use the latest news developments to lure investors into scams. 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.”
How to detect potential scams
The regulator explained that these fraudsters mostly used research reports and made use of predictions of specific target prices in luring investors.
Additionally, the SEC mentioned that these coronavirus investment scams may be connected to any company and microcap stocks. This is because many microcap companies’ management, products and services, and financial details are restricted from the general public.
This makes fraudsters take advantage of the opportunity, spread wrong information, and make a profit from gullible investors.
An instance is a “pump-and-dump” scheme, where the stock of a company is caused to grow by spreading positive and false information, this information about the company attracts investors to put their funds.
But when the influencers sell their stocks at the peak of the growth, the stock price drops and other investors make losses.
The way forward
The SEC also revealed measures to curb such illegal activities.
Among them is the suspension of trading activities of certain companies. The regulatory body revealed that for about 10 days, they will be suspending the stocks of any company without accurate, reliable and updated information.
Besides, investors of any penalized company won’t be able to sell their shares until the suspension is over.
“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,” the SEC said.
Furthermore, the SEC advised investors saying: “We urge investors to be wary of these promotions and to be aware of the substantial potential for fraud at this time.”
“When investing in any company, including companies that claim to focus on coronavirus-related products and services, carefully research the investment and keep in mind that investment scam artists often exploit the latest crisis to line their own pockets,” the regulators advised.