If you’re paying any
attention to emerging markets, it goes without saying that the legalization of
marijuana for medical and recreational use has triggered a stampede of medical
marijuana-related stocks. And along with it, fraud in the microcap space. The
U.S. Securities and Exchange Commission (SEC) recently issued a warning to
investors about possible scams involving marijuana-related investments after a
handful of companies came into question.
In the past two
months alone, the agency says it has suspended trading on five cannabis
industry microcaps flagged for potential fraud.
“For
marijuana-related companies that are not required to report with the SEC,
investors may have limited information about the company’s management,
products, services, and finances,” the SEC’s alert says. “When publicly
available information is scarce, fraudsters can more easily spread false
information about a company, making profits for themselves while creating
losses for unsuspecting investors.”
The SEC’s Microcap
Fraud Task Force is responsible for sharking the microcap market to identify
inadequate or potentially misleading/inaccurate news disseminated by public
companies. The SEC is authorized to suspend trading on questionable companies
for up to 10 days while the alleged activity is further investigated.
“Recent changes in
state laws concerning medical and recreational marijuana have created new
opportunities for penny stock fraud,” Elisha Frank, co-chair of the SEC
Enforcement Division’s Microcap Fraud Task Force, stated in the SEC’s news
release. “Wherever we see incomplete or misleading disclosures, we act quickly
to protect investors.”
The SEC recently
suspended trading on FusionPharm, Inc.; Cannabusiness Group, Inc.; GrowLife,
Inc.; Advanced Cannabis Solutions, Inc.; and Petrotech Oil and Gas, Inc.
“We know from
experience that fraudsters follow the headlines,” said Lori J. Schock, director
of the SEC’s Office of Investor Education and Advocacy, which prepared the
investor alert. “Given the attention that marijuana-related companies have
attracted recently, we urge investors to exercise caution when looking at
investments in this space. Always thoroughly research the company – and the
person selling the investment – before making a decision.”
For more information
visit www.sec.gov
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