After the recent charges filed against a fraudulent cannabis investment company and its founder, the SEC issued an Investor Alert to remind investors to be cautious about jumping into so-called “pot stocks” without due diligence.
In an effort to exploit current events, fraudulent sellers are usually unregistered and/or unlicensed. Many offers are made via email, an unsolicited phone call or text message or, a message on social media for these fraudulent investment schemes.
Using the term “guaranteed returns” is usually a sign of something fraudulent—especially if they claim there is “no risk involved.”
You can investigate someone selling or recommending an investment at Investor.Gov, and find out if they are legitimate, or if they’ve been barred from working as an investment professional. (You can also visit FINRA’s BrokerCheck website to look up an individual or company.)
Many fraudsters will spread false and/or incorrect information about a company in order to manipulate the stock prices. New spread on a company’s website and/or on social media can be used to inflate or deflate the stock price, depending on the desired outcome.
Microcap stocks are also called “penny stocks.” They are stocks from companies with low or “micro” market capitalizations, less than $300 million, and are traded over the counter. Because the companies are smaller, there is less publicly available information that’s available to the investor. These stocks have no minimum listing standards, and carry a higher amount of risk with less liquidity.
During research, you may find some other red flags that could indicate fraud:
- The SEC has suspended trading for the company
- The company has changed names, its business plan or its industry many times
- False press releases that seem improbable may be issued by the company to drive the stock price up, down, or otherwise manipulate it.
Another consideration: although medical marijuana is legal in thirty states, and recreational marijuana is legal in nine, federal law still sees it as illegal, and a Schedule 1 narcotic. The criminal nature of the company’s business could still be prosecuted under federal law, and have a significant impact on your investment.
The SEC recommends that before investing in any form of securities that you ask questions, do diligent research and read any recent reporting that the company has filed with the SEC. Their free search tool, Edgar, is a real-time search engine that can give you company filings and other information quickly.
While cannabis-related investments may be the next “dot-com” at some point, it’s important to know what you’re investing in before you hand over a dime to anyone. If it sounds to good to be true, it very likely is.Silver Law Group’s Marijuana Litigation Attorneys
If you’ve invested in a “pot stock” and aren’t sure if it’s the real thing, contact us for a free consultation. Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida, and represent investors nationwide to help recover investment losses due to stockbroker misconduct and other investment-related wrongdoing. Our attorneys currently represent many investors in marijuana related litigation. Most cases handled on a contingent fee basis. This means that you won’t any pay legal fees unless we are successful. Call us toll free at 800-975-4345, or use our online contact form to get in touch.