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:
- Research the investment adviser: What is the adviser’s background? Is he or she a registered representative with FINRA? What does FINRA’s BrokerCheck database say (available at finra.org/brokercheck)? What does the SEC’s Investment Adviser Public Disclosure database tell you (available at www.investor.gov)?
- Be skeptical of guarantees of high returns with no risk: There’s no such thing as a free lunch, and every investment (aside from a savings account) carries some degree of risk. Greater returns usually indicate greater risk.
- Don’t rely on unsolicited advice from social media: If someone posts to your Facebook wall that they have a great “opportunity” or that they have “inside” information, be cautious. Before making that kind of investment, discuss it with an adviser you trust.
- Research the investment: Take a look at the SEC’s database called EDGAR and see if the company or offering is registered? If not, look to see if it is registered with a state securities agency. If the company or offering is not registered, this could be a sign of a risky investment or an out-and-out scam.
Finally, specific to the Zika crisis, check with the Centers for Disease Control or the National Institutes of Health to get the latest news on the virus. If a treatment or vaccine is in the works, these agencies will know before an investment adviser.
If you believe you’ve been a victim of this kind of scam and have lost money, give us a call at 561-659-7878.