Investors should be leery of small, publicly listed companies claiming to have developed a vaccine, cure or method of detecting the coronavirus, Canadas securities regulators warned Thursday in a joint statement.
The Canadian Securities Administrators, the umbrella organization that represents the countrys provincial securities commissions, said in a statement that the coronavirus pandemic has attracted fraudsters looking to take advantage of the crisis and deceive investors.
The CSA release states that investors need to be especially wary of what are known as pump and dump schemes which typically start with a penny-stock company making false claims about a potentially lucrative innovation to help with the pandemic. The false information is spread through social media and paid marketing campaigns, drawing in investors and inflating or pumping the price of the stock. Once the stock price has hit a certain point the fraudsters sell their own shares the dump portion of the scheme leaving new investors with worthless paper.
Story continues below advertisement
At this time, there is no vaccine or any natural health product that is authorized to treat or protect against COVID-19, the CSAs release states.
The Alberta Securities Commission is leading the investor awareness campaign in Canada. Alison Trollope, the regulators director of communications, said that she could not point to a specific companys promotional activity but said the regulators have seen early indicators of such frauds. She said investors should look out for several telltale features of a pump and dump.
Any claims made by smaller companies on junior exchanges that are suddenly in the COVID-19 containment business, need to be treated with a lot of skepticism, Ms. Trollope said. She also warned of companies that have hopped from one business to another.
The companies that we would red flag immediately claim their research is well under way to protect humankind, but six months ago they were in the cannabis business and a year ago they were in the mining business, she said.
Ms. Trollope also urged potential investors to very closely read any e-mail they receive promoting a companys advancements in the fight against the virus. The bottom of most e-mails usually include a disclaimer, explaining that the e-mail is part of a paid promotional campaign and that the sender cant be held liable if the companys claims turn out to be untrue.
The United States Securities and Exchange Commission issued a similar warning to investors in February.