The SEC has issued an Investor Alert regarding fraudsters attempting to profit by exploiting the dangers associated with the Zika virus. For those not following the news, Zika is a tropical disease transmitted by mosquitoes. Outbreaks have been reported in South America, with cases popping up in the United States. Zika infections in pregnant mothers have recently been linked to microcephaly in babies, i.e., babies born with heads much smaller than expected, leading to significant public health concerns.
According to the SEC, fraudsters are attempting to sell investments in companies supposedly developing treatments or other products for Zika. Scams could include so-called “pump-and-dump” schemes, whereby fraudsters encourage investors to buy shares in a company or a fund by spreading rumors that the company is involved in developing a treatment or cure for Zika. The rumors prompt investors to buy the shares, thus driving up the price. The fraudsters then sell their shares while the price is high but before the truth is revealed. Penny stocks are particularly susceptible to this kind of fraud. As always, be wary before sinking a significant sum of money in penny stocks.
The SEC recommends that investors use common sense before putting money in a Zika-related investment. Specifically, before making any investment – especially one tied to Zika – an investor should do the following: