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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