The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn investors about investment scams involving companies that claim their products or services relate to Ebola.
If you are considering investing in a company that purports to develop products or services relating to Ebola, be aware that fraudsters often attempt to take advantage of the news as a hook for investment schemes touting “the latest growth industry” whether it be oil and gas, virtual currency, or marijuana. Similar to how natural disasters such as Hurricane Katrina and Hurricane Sandy have given rise to investment scams (including promoters touting companies purportedly involved in cleanup efforts, trading programs with false guarantees of high returns, and classic Ponzi schemes), con artists may perpetrate investment scams related to Ebola prevention, protection, testing, or treatment.
Although any company may make false statements relating to Ebola to lure investors, microcap stocks (low-priced stocks issued by the smallest of companies) such as penny stocks (the very lowest priced stocks) may be particularly vulnerable to fraudulent investment schemes, including Ebola-related investment scams. There is often limited publicly-available information about microcap companies’ management, products, services, and finances, and this can make it easier for fraudsters to spread false information about the company and to profit at the expense of unsuspecting investors.
For example, in a “pump-and-dump” scheme, promoters “pump” up the stock price of a company by spreading positive rumors that incite a buying frenzy and then they quickly “dump” their own shares before the hype ends. Typically, after the promoters profit from their sales, the stock price drops and the remaining investors lose money.
The SEC can suspend trading in any stock for up to 10 days when it believes that information about a company is inaccurate or unreliable. Investors who own stock in a company subject to a trading suspension may be unable to sell their shares until the trading suspension is lifted, or even after. The SEC issued temporary trading suspensions for the common stock of four microcap companies that claim their operations relate to the current Ebola outbreak: Bravo Enterprises Ltd.; Immunotech Laboratories, Inc.; Myriad Interactive Media, Inc.; and Wholehealth Products, Inc.
The SEC suspended trading in these companies based on a lack of current and accurate publicly-available information, including information about the relationship between the companies’ business prospects and the current Ebola crisis.
Beware of Red Flags of Potential Fraud
As with any investment, be cautious if you spot any of these warning signs of potential fraud:
If you are buying low-priced shares of a small company (e.g., buying a stock that trades in the “over-the-counter” (also called OTC market)), also beware of red flags of potential microcap fraud such as:
Even in the absence of fraud, microcap stocks are among the most risky. For more information, read Microcap Stock: A Guide for Investors.
Research the Investment
You can research investments by checking the SEC’s EDGAR database or contacting your state securities regulator to find out whether the company has registered its securities offering with the SEC or a state securities regulator. If a company has not registered its securities, read our Investor Alert, 10 Red Flags That an Unregistered Offering May Be a Scam, and our Investor Bulletin, Private Placements Under Regulation D.
Read recent reports that the company has filed with the SEC. If there are no reports, ask your broker for the “Rule 15c2-11” file, which may contain information about the company (the federal securities laws may require your broker to collect certain information).
When investing in a company that claims to focus on Ebola-related products and services, carefully review all information you receive about the investment and keep in mind that investment scam artists often exploit the latest crisis to line their own pockets.
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The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.