Investor Alert: Marijuana Investments and Fraud
Sept. 5, 2018
Scam artists often exploit “hot” industries to trick investors, including by making false promises of high returns with low risks. The SEC’s Office of Investor Education and Advocacy (OIEA) and Retail Strategy Task Force are warning investors about these kinds of investment schemes involving marijuana-related companies.
OIEA regularly receives complaints about marijuana-related investments, and the SEC continues to bring enforcement actions in this area. If you are thinking about investing in a marijuana-related company, you should beware of the risks of investment fraud and market manipulation.
Fraudsters may try to use media coverage about the legalization of marijuana to promote an investment scam. Look out for these signs of fraud:
- Unlicensed, unregistered sellers. Unlicensed, unregistered persons commit many of the securities frauds that target individual, Main Street investors. Check out the background, including registration or license status, of anyone recommending or selling an investment, using the free simple search tool on Investor.gov.
- Guaranteed returns. If someone promises you a guaranteed high rate of return on your investment, especially along with a claim of no risk, it likely is a fraudulent scheme.
- Unsolicited offers. If someone reaches out to you through social media, an e-mail, a text, or a phone call regarding an investment “opportunity,” it may be part of a scam.
Fraudsters may manipulate stock prices (for example, causing them to rise or fall dramatically) by spreading false and misleading information about a company. Microcap stocks, some of which are penny stocks and/or nanocap stocks, may be more susceptible to market manipulation than stocks of larger companies. This is because information about microcap companies may be hard to find and microcap stocks historically have less liquidity. Be cautious if you spot red flags of microcap fraud:
- Trading suspension. Check whether the SEC has recently suspended trading of the company’s stock.
- Changes to company name or type of business. Research the company and be skeptical if the company has abruptly changed its name, industry, or business plan multiple times.
- False press releases. Press releases that seem implausible may indicate that the company’s stock is being hyped solely to drive up its stock price.
If you are considering investing in a company with operations relating to the marijuana business industry, understand that the company may be criminally prosecuted and this may impact the value of your investment.
As with any investment decision, ask questions and understand the risks involved. Carefully research the investment and read any recent reports that the company has filed with the SEC.
SEC Enforcement Actions:
- SEC v. Cone and Greenview Investment Partners, L.P.
- SEC v. Bud Genius
- SEC v Miller
- SEC v. Fortitude Group; SEC v Strategic Global Investments
- In the Matter of Fusion Pharm
- SEC v. Notis Global (fka Medbox, Inc.)
- SEC v. Galas
- In the Matter of Henry Lin-Han Jan; In the Matter of Artemus Mayor
Report a possible securities fraud.
Visit Investor.gov, the SEC’s website for individual investors.
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