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Gregory Tendrich, PA Gregory Tendrich, PA

FINRA Alerts Investors to Ebola Stock Scammers

Media outlets throughout the world continue to report on the tragic Ebola outbreak still ravaging West Africa. As recently reported, over 1,200 people have been killed since the virus began rapidly spreading in December 2013—and almost twice that number have been sickened.

The virus itself does not appear to be directly affecting the United States, save through a small number of healthcare workers that came in direct contact with it through their work overseas and who are being carefully treated back home. However, this has not stopped scammers from taking advantage of the outbreak in another insidious way: through securities fraud.

Scammers Take Advantage of Popular Fears

This summer, FINRA released an Investor Alert warning against Ebola-related stock scams.

“Keep your portfolio quarantined from potential viral disease investment scams,” FINRA wrote. “If history is a guide, dramatic news coverage of viral outbreaks, including Ebola and Middle East Respiratory Syndrome (MERS), will likely catch the interest of stock scammers looking to capitalize on fears of a potential pandemic. Don’t fall for the hype.”

According to FINRA, most Ebola stock scams take the form of ‘pump and dump’ fraud. Fraudsters feed off of the frenzied news cycle and consumers of that news. They market companies to unsuspecting investors, aware of the current attention on the virus and touting cures or products that can slow or stop its spread. They promote these companies aggressively, issuing baselessly optimistic press releases or other materials and thereby driving up interest in the companies’ stocks.

These promoters—who own shares of these companies (which are generally small and in poor financial health)—then tend to wait until the stock is “pumped” up through the buying activity. Once that stock hits a certain benchmark, however, the promoters sell—leaving those defrauded holding onto devaluating shares of stocks not worth what had been advertised.

FINRA’s Tips to Avoiding an Ebola Stock Scam

In the Investor Alert, FINRA provides guidance for investors to help them avoid these types of scams. And while these tips are useful for the recent uptick in Ebola-related fraud, they are also broadly applicable to avoiding ‘pump and dump’ schemes generally.

First, FINRA urges potential investors to “consider the source.” Meaning, those reading press releases or other marketing materials should be skeptical about too-good-to-be-true claims and investigate from where these claims arose. Next, FINRA encourages investors to do independent research about those in control of the company and understand where the company’s stocks are listed. Most pump-and-dump schemes do not involve the New York Stock Exchange or the NASDAQ, which impose certain minimum requirements on listed securities. Rules are looser in over-the-counter markets. FINRA also recommends delving into the SEC filings, which may reveal information not readily available in optimistic press releases.

Investors are also advised to pay attention to suspiciously frequent changes to the company’s name or focus. Such alterations can be red flags that suggest a company is solely focused on attracting investors to the “next big thing.” FINRA also suggests that, however tedious, investors read the fine print. There may be valuable information contained below the attractive headlines. And finally, investors should be wary of name dropping: claims that a company has special relationships with prominent institutions or government agencies may be overblown or disingenuous.

If believe that you may have been the victim of a stock scam, securities fraud or financial exploitation, please contact attorney Gregory Tendrich, P.A. to discuss your legal options today.

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