An investor alert this week from the Financial Industry Regulatory Authority, Inc. begins with the ominous warning, from “regulators, law enforcement agencies, and consumer organizations around the globe, the message is clear: fraudulent schemes related to the coronavirus (‘COVID-19’) pandemic have arrived.”
A recent investor alert from the Securities and Exchange Commission’s Office of Investor Education and Advocacy also warns of Internet promotions, including on social media, claiming that the products or services of publicly-traded companies can prevent, detect, or cure COVID-19, and that the stock of these companies will dramatically increase in value as a result. The alert cautions that these promotions often take the form of so-called “research reports” and make predictions of a specific “target price,” and urges investors to be wary of these promotions and aware of the substantial potential for fraud at this time.
Similarly, the Consumer Financial Protection Bureau is offering all consumers up-to-date information and resources to protect and manage their finances at: Protecting your finances during the Coronavirus Pandemic.
FINRA, in particular, is recommending that investors in securities take the following steps to best ensure that their investments are legitimate:
- Ask and Check: research and verify information prior to making an investment decision;
- Be Skeptical: use caution with companies that make exaggerated claims to cure COVID-19 or other illnesses;
- Read SEC Filings: check the SEC’s Electronic Data Gathering, Analysis, and Retrieval database to confirm whether a public company files with the agency to make sure that the company’s promotional information aligns with the reports submitted to EDGAR;
- Question Companies That Are New to the Cure Market: be skeptical of companies that change their names or business focus to tout disease-prevention products; and
- The Scam Meter: use FINRA’s “Scam Meter” to see if a potential investment is a scam.
Financial advisors and broker-dealers should heed these same warnings.
Troutman Sanders, which effective July 1, 2020, will combine with Pepper Hamilton to become Troutman Pepper Hamilton Sanders LLP (“Troutman Pepper”), regularly represents financial services institutions and their associated persons, including brokers, financial advisors, and other registered representatives in FINRA arbitrations, securities industry disputes, and regulatory matters involving customer, employment, and intra-industry claims.