US regulator warns against companies claiming to have ability to stop coronavirus
US Securities and Exchange Commission (SEC) on Monday issued an alert warning to people against investing in publicly trade companies based on fraud claims about their products’ ability to stop coronavirus. It specifically red-flagged “microcap stocks”, low-priced shares of small, less-known companies.
“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,” SEC’s office of investor education and advocacy said in a statement.
It did not list specific promotions but said they could come in the form of “research reports” with predictions of specific “target price”, a valuation of the stock.
The SEC temporarily suspended trading of two companies. In the first case, the regulator said it was concerned about the accuracy and adequacy of information available about the viability of the company’s product to treat the coronavirus. And, in the second, SEC had issues with the company’s “purported international marketing rights” to an approved coronavirus treatment.
Fears and concerns about the spread of coronavirus in the United States have been growing even as the Trump administration has sought to reassure Americans that most of them face a “low” risk of contracting the illness. It has also announced new and expanded travel restrictions as fresh cases are being reported from various parts of the country, including the first death.
While people stock up on emergency supplies, such as masks, which are going at a premium, some among them may be tempted to cash in on it, specially by low-priced stocks of health-related companies that are suddenly zooming, pumped up by fraudsters as part of a scam.
The SEC warned specifically about “microcap stocks”, low-prices shares of small companies about whom not enough information is available publicly. Unsuspecting investors are lured to them by fraudsters through, what the regulator said, were “pump-and-dump” schemes.
False and misleading claims are spread through promotions about these stocks, which also begin to rise because of buying by the scammers. And once they have made enough, they are known to just dump the stocks, leaving other investors holding on to worthless stocks that will never ever rise.