Doing your research ‘is a powerful tool,' says ASC
According to a recent media release, the Alberta Securities Commission (ASC) - as part of the Canadian Securities Administrators (CSA) - is warning Canadians about companies claiming to have products or services that will prevent, detect, or cure coronavirus (COVID-19) infection.
Fraudsters, it was stated in the recent media release, 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.
“Be cautious of any claims a company has a solution to help stop the coronavirus outbreak. Reliable information relating to COVID-19 is available from the World Health Organization (WHO) and the Government of Canada,” it was stated.
James MacTavish, ASC senior advisor for investor and industry education said, it really comes back to the fact fraudsters really do like to capitalize on uncertain times and certain trends in the market. “Something, unfortunately like the COVID-19 pandemic, is just another one of those areas they capitalize on it.”
MacTavish explained the way they are doing it now is by stating particular companies have a vaccine, cure, or some type of way to prevent coronavirus.
“And that they're trying to get investors to buy into these 'shell' companies, which are ultimately just pump-and-dump schemes. It's really something we're seeing early indicators to and it's just something we want all Albertans to be aware of. Always make sure to do research and to check with us if they ever have any questions about it,” MacTavish noted.
What Canadians need to know 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.
At this time, according to the media release, there is no vaccine or any natural health product authorized to treat or protect against COVID19. When investing in any company, carefully research the investment and keep in mind fraudsters often exploit the latest crisis. If you believe you or someone you know has been offered a fraudulent opportunity related to the coronavirus, please contact your provincial or territorial securities regulator.
It was stated in the media release, the CSA is also 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,” it was stated.
A part of the ASC's job, MacTavish said, is really to be out there to provide information and to educate Albertans on how to stay safe and also to help them be aware of these activities. “We were in co-ordination with the CSA with this release and this is just part of that ongoing effort to make sure Albertans are abreast of this information.”
According to MacTavish, the one key thing to really look out for is to keep in mind even information posted from a company might not necessarily be reliable. “There's a lot of small junior companies out there that are listed on the Venture Exchange, but again you really have to do your deep digging into this information. We have a lot of investors that reach out and go 'I have some information from their website and it sounds really good for me to invest in.' But, we always say, look deeper into this information.”
It's not uncommon to see a company that maybe six months ago was in the cannabis industry or maybe a year ago was in the mining business,” MacTavish added.
“When you look at it, the company might seem credible. But with deeper research you might see that really there's no real business plan or there's no real information and scant evidence of actual investment in the health industry. In particular, vaccines or cures. That's enough to give you a red flag to stay away. Information and doing your research is a powerful tool,” said MacTavish.
Albertans can visit the ASC investororientated website CheckFirst.ca, where they can learn about the common types of red flags including pump-and-dump schemes, the steps to take to make informed investment decisions, and check the registration of any individual or firm offering them an investment.