FINRA Cautions Investors on Viral Disease Stock Scams

FINRA recently issued an Investor Alert, “Viral Disease Stock Scams: Don’t Let Them Infect Your Portfolio.” In the Alert, FINRA warns that dramatic news stories viral outbreaks, such as Ebola and Middle Eastern Respiratory Syndrome (“MERS”), historically give rise to scammers seeking to capitalize on fears of a potential pandemic. In fact, FINRA stated it is aware of potential investment scams involving companies that claim to be involved in the development of products that will prevent the spread of viral diseases. Thus, FINRA issued the Investor Alert to remind investors to be wary of stock promotions, particularly those employing aggressive tactics, which claim to protect against the spread of viruses or other harmful diseases.

Signs of a Potential Investment Scam

FINRA warned that stock scams frequently use a “pump and dump” scheme. The scheme begins with “the pump,” in which the promoters aggressively market the business using optimistic statements, press releases, emails and other public relations tactics to create demand for stock shares. As soon as the share price and volume spikes, the promoters sell of their shares at a profit, and leave investors with worthless, or almost worthless, stock – “the dump.”

FINRA warned investors that stocks of small companies often are targeted for pump and dump schemes. Promoters of these schemes frequently are paid by company insiders or other promoters who will benefit from the selling their shares at an inflated price.

FINRA invited investors to contact it if an investor is suspicious about an offer or believes claims may be exaggerated or misleading. In addition, if an investor has been taken in by a scam, the investor should send a tip to FINRA or file a complaint.

Tips to Avoid a Scam

FINRA also offered the following tips to avoid a potential stock scam:

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