FINRA Cautions Investors Regarding E-Cigarette Stock Scams

FINRA recently issued an Investor Alert, “E-Cigarette Stock Scams: New Smoking Technology Could Light Up Pump-and-Dump Fraud.” In the Alert, FINRA warns investors of aggressive promotions advertising stocks that allegedly capitalize on the popularity of the e-cigarette and vaporizer market. FINRA’s Alert follows the Securities and Exchange Commission’s recent trading suspension for a company that purported to make disposable electronic cigarettes because of concerns about manipulative activity related to the company’s common stock. FINRA urges investors who receive an offer that contains exaggerated or misleading claims to contact FINRA
“The popularity of e-cigarettes has grown rapidly over the last several years, and the e-cigarette and “vape” markets have been the subject of considerable media attention. Investors interested in this market have to look beyond the hype and be watchful for pump-and-dump fraudsters who are eager to make their money disappear into thin air,” said Gerri Walsh, FINRA’s Senior Vice President for Investor Education in a FINRA statement.

FINRA is concerned that fraudsters may attempt to entice investors into purchasing stock through a variety of activities including aggressive stock promotion, name changes and reverse mergers, which often play into the classic “pump and dump” fraud. Aggressive, optimistic statements made in press releases, emails, and other promotions drive investor demand for a company’s shares (the pump), and when the share price and volume increase, the fraudsters sell their shares at a profit, cease promoting the stock, and leave investors holding worthless, or almost worthless, stock (the dump).

FINRA offered several tips to assist investors in avoiding possible stock scams:

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