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Regulators warn against coronavirus-related investment scams

By The IJ Staff | March 19 2020 03:54PM

The Canadian Securities Administrators issued a warning to investors on March 19 about companies claiming to have products or services that will prevent, detect or cure coronavirus COVID-19 infection.

“Fraudsters take advantage of global events and breaking news to lure potential investors with the expectations of significant returns. A common way they do this is through pump-and-dump schemes involving publicly traded small "shell" companies,” stated the CSA.

The CSA provided the information for Canadians about pump-and-dump schemes:

  • These fraudulent penny stock companies may have limited or untrue publicly available information about the management team, their products or services, and their finances.
  • Fraudsters spread positive, but false, information that lures investors to purchase the stock. The false information may spread, for example, through hyped-up news releases, social media or paid promotional campaigns through other individuals, companies or websites. The more investors that purchase the stock, the more inflated or "pumped up" the price of the stock becomes.
  • Fraudsters then quickly "dump" their stock before the hype ends, resulting in a substantial payout for them. The stock price then drops and the remaining investors lose their money.

The CSA added that there is currently no vaccine or any natural health product that is authorized to treat or protect against COVID-19. “Be cautious of any claims that a company has a solution to help stop the coronavirus outbreak.”

The CSA requested that anyone who has been offered a fraudulent opportunity related to the coronavirus contact their provincial or territorial securities regulator.

The CSA also said it is aware of instances where Canadians are targeted by scam artists using fear around the current economic conditions to attempt to steal the investor's money. “Investors contacted by anyone with warnings about their investments or finances should never give out any personal information, and contact their investment adviser or bank separately after independently verifying the phone number to ensure the caller is legitimate.”

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