Scammers are adept at manipulating anything that has captured the attention of the public and turning it into an opportunity to scam people. Today and tomorrow I will be telling you about scams related to the worldwide coronavirus outbreak. Earlier this week the Securities and Exchange Commission (SEC) issued a warning in which it said that it had 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.” Everyone would like to be able to invest in a stock while the price is still low, but can be expected to rise dramatically. This desire for the quick hit is exploited by scam artists in a scam called the “pump and dump.” In this scam, you may receive an email often apparently intended for someone else informing you of a company with a low cost stock that is about to have its price rise tremendously. Other times the stock may be talked up in Internet chat rooms. Most often these companies are small capitalization companies, often referred to as penny stock companies. These stocks are often thinly traded. Following the advice, from someone they don’t know, the victim buys the stock and, sure enough, the stock value promptly rises, but then without warning, the stock plummets in value and you are left with a poor investment. This scam is created by criminals who buy the stock themselves at a low value and then influence others to buy the stock regardless of the fact that the stock would not be expected to rise in value were it not for the fact that the scammers misrepresent the stock to their victims and lure them into buying it. Once the stock has shot up in value, the criminals, knowing that the emperor has no clothes, sell their stock, make a profit and leave the victims with worthless stock certificates.
In regard to the coronavirus, the World Health Organization indicated this week that there are “no known effective therapeutics” available to prevent or treat the coronavirus.
Always consider the sources of any investment advice that you receive. How reliable is the source? What are their credentials? What do they stand to gain? Some particular red flags that the stock offer is a scam include unregistered investment advisers approaching you. You can find out if a particular investment adviser is registered by going to the SEC’s Investment Adviser Public Disclosure database. Here is a link to that data base. https://www.investor.gov/
Also, be wary of promises of huge profits with little or no risk. That is a common thread with many scams.
Finally, be skeptical when you receive a stock solicitation by way of an email, text message, phone call or any other communication that you have not initiated. Also, be particularly skeptical if the promoter of the stock tells you that he has inside information because trading on inside information is a criminal violation and as Martha Stewart would tell you, that is not a good thing.