SEC Alert Warns Investors About Marijuana Investments and Fraud

WASHINGTON, D.C. – The U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy (OIEA) and Retail Strategy Task Force has issued an alert warning investors about “investment schemes involving marijuana-related companies.” The SEC issued a similar alert about the industry in 2014.

The schemes involve “Scam artists [who] often exploit ‘hot’ industries to trick investors, including by making false promises of high returns with low risks,” the latest alert stated.

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Urging extreme due diligence, the SEC warned,Fraudsters may try to use media coverage about the legalization of marijuana to promote an investment scam,” and cited a few warning signs of potential fraud, including unlicensed and unregistered sellers, guaranteed returns, and unsolicited offers.

The alert continued, “Fraudsters may manipulate stock prices (for example, causing them to rise or fall dramatically) by spreading false and misleading information about a company. Microcap stocks, some of which are penny stocks and/or nanocap stocks, may be more susceptible to market manipulation than stocks of larger companies. This is because information about microcap companies may be hard to find and microcap stocks historically have less liquidity.”

Microcap-related red flags cited by the Commission include trading suspensions, changes to company name or type of business, and false press releases.

The alert included a list of eight enforcement actions taken by the SEC against cannabis companies reaching back a handful of years, the earliest of which appears to have been filed in 2014.

The alert also contained contact information where people can file reports of suspected fraud, and recommended that potential investors use a free tool at investor.gov that allows them to “check out the background, including registration or license status, of anyone recommending or selling an investment.”

Not so coincidentally, the SEC also recently stated that the cannabis and cryptocurrency industries share similarly high levels of fraud, and engage in similar fraudulent schemes.

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