Below is an alert that I received this morning from the SEC on potential Zika scams. As this epidemic becomes more prevalent in the Americas, it will be
important to stay vigilant in watching out for and protecting clients against schemes related to the virus and the development of products or services
to "cure" or "treat" it.
From: Securities and Exchange Commission [firstname.lastname@example.org]
Sent: Thursday, March 10, 2016 8:18 AM
To: Renee Emrick
Subject: Investor Alert: Zika Crisis May Give Rise to Investment Scams
The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn investors about potential investment scams involving companies
that claim their products or services relate to the Zika virus.
Investment scam artists often exploit the latest crisis to line their own pockets and Zika is no exception. The SEC staff is aware of increased stock promotion
of companies that claim to be developing products or services relating to the Zika virus.
Beware of Zika-Related Investment Scams
As with any investment, watch out for these red flags of potential investment fraud:
* Unregistered investment professionals. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. Use the SEC’s Investment
Adviser Public Disclosure (IAPD) database, which is available on Investor.gov, to check the registration status of anyone recommending or selling an investment.
* Promises or guarantees of high investment returns with little or no risk. Every investment carries some degree of risk, and the potential for greater
returns often comes with greater risk. Be skeptical of any investment that guarantees a high rate of return on your investment or does not disclose
* Unsolicited offers, including through social media. A new post on your wall, a tweet mentioning you, a direct message, an e-mail, a text, a phone call,
or any other unsolicited – meaning you didn’t ask for it and don’t know the sender – communication regarding an investment “opportunity” may be part
of a scam. Be especially suspicious if you are told that the promotion is based on “inside” information or if you are asked to keep the investment
Investment scams exploiting the Zika crisis may include “pump-and-dump” schemes, where promoters “pump” up the stock price of a company by spreading positive rumors that incite a buying
frenzy and then they quickly “dump” their own shares before the hype ends. Typically, after the promoters profit from their sales, the stock price
drops and the remaining investors lose money.
Microcap stocks (low-priced stocks issued by the smallest of companies that trade in the “over-the-counter” (also called OTC) market),
including penny stocks (the very lowest priced stocks), are particularly susceptible to pump-and-dump schemes. Publicly-available information
about microcap companies often is scarce, making it easier for fraudsters to spread false information. In addition, it is often easier for fraudsters
to manipulate the price of microcap stocks because microcap stocks historically have been less liquid than the stock of larger companies (“liquid”
investments are those that can be sold easily). Be aware of these microcap fraud warning signs:
* SEC trading suspension: Check if the SEC suspended trading of the company’s stock.
* Frequent changes in company name or type of business
* Unsolicited stock recommendation or heavy stock promotion
Even in the absence of fraud, microcap stocks are among the most risky. For more information, read Microcap Stock: A Guide for Investors.
Research the Investment
Check whether an offering is registered with the SEC by using the SEC’s EDGAR database. If an offering is not registered with the SEC, check if it is registered with your state securities regulator. If a company has not registered its securities, read our Investor Alert, 10 Red Flags That an Unregistered Offering May Be a Scam.
Read recent reports that the company has filed with the SEC. If there are no reports, ask your broker for the “Rule 15c2-11” file,
which may contain information about the company (the federal securities laws may require your broker to collect certain information).
Before investing in a company that claims its products or services relate to the Zika virus, carefully review all information you receive about the investment.
For more information about the Zika virus, including vaccine and treatment research, visit the websites of the Centers for Disease Control and Prevention (CDC), National Institute of Allergy and Infectious Diseases (NIAID), National Institutes of Health (NIH), and U.S. Food and Drug Administration (FDA).
Protect your money from fraudulent investment schemes using the Zika crisis as a hook.
SEC Investor Alert: Fraudulent Stock Promotions
SEC Investor Alert: Investment Scams Involving Ebola-Related Companies
SEC Investor Alert: Investment Newsletters Used as Tools for Fraud
FINRA Investor Alert: Viral Disease Stock Scams: Don’t Let Them Infect Your Portfolio
Report possible securities fraud to the SEC. Ask a question or report a problem concerning your investments, your investment account or a financial professional.
Visit Investor.gov, the SEC's website for individual investors.
Receive Investor Alerts and Bulletins from the Office of Investor Education and Advocacy (“OIEA”) by email or RSS feed. Follow OIEA on Twitter @SEC_Investor_Ed. Like OIEA on Facebook at facebook.com/secinvestoreducation.
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement
of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes
in securities law.