New Industry, New Scams: Watch Out for False Stock Options
With the emergence of different industries, scammers find new ways of duping investors out of their money.
In the medical marijuana industry, new scams have arisen. The state of Utah (the most recent state to consider medical marijuana laws) has taken special measure to warn the general populace about the danger of false stock options being offered up by criminals.
The Utah Department of Commerce is warning about the danger of false stock options promoted via social media, email campaigns, blogs, and multiple other outlets, which are targeted towards young investors. The promoters of these stocks claim that there is a strong demand for shares in medical marijuana businesses, when really the company is worthless and not what they make it out to be. After you spend money on the stocks, the “company” is dumped by the scammer, and they take off with your money.
How do I know which companies are safe to buy stock in?
Regardless of whether you’re investing in medical marijuana or some other company, you can research the company via the attorney general of your state, and see if the company actually exists and is registered with the state. Before that, however, you can simply do an Internet search of the company name and of members of the company and see what you find. If there is little to no information, previous legal issues, or frequent company name changes, that should raise some questions for you concerning their legitimacy and whether they are a good company to invest with.
Before giving up your money to an investment which promises high returns on medical marijuana, look to where the stock is supposedly traded. Many of these unsolicited stock promotions do not trade on registered national securities exchanges, such as NASQAQ or the New York Stock Exchange. You can search the Securities and Exchange Commission’s EDGAR database to find out whether the company has filed with the SEC.
Why target the marijuana industry?
Utah is the twenty-second state to pass medical marijuana legislation, Colorado and Washington State have passed legislation making commercial marijuana sales legal, and California has decriminalized marijuana. The spike in new business formation and state tax revenue has created the perfect opportunity for these types of scams to take hold in a fairly “new” and untested industry. Also, the Whitehouse recently announced that federal banking institutions will now accept payments from medical marijuana dispensaries, and there is worry that these scammers are hoping to take advantage and profit off of renewed public trust in this industry.
The bottom line:
When you hear about a great stock option or receive a fabulous insider tip, put aside initial excitement and think, “Why would someone tell me this, out of the blue?” What loyalty does this insider have towards you? The situation is that likely there is no merit in the tip and you may be headed for trouble. These stock promoters are generally insiders who have been paid to promote. When you get a “hot” stock tip, do your research, and invest wisely.
