The Financial Industry Regulatory Authority (Finra) today issued an alert to warn investors about stock scams involving fake or thinly traded companies selling everything from fortified foods and energy drinks to "natural" medicines.
Like many investment scams, Finra officials say in Nutraceutical Stock Scams--Don't Supplement Your Portfolio With These Companies that pitches for nutraceutical stocks may arrive in a variety of ways--from cold calls to e-mail, tweets, blogs or message board posts.
Nutraceuticals are products that claim to help people to lose weight, get an energy boost, live longer or fight the common cold, and can include dietary supplements and food and drink products that contain additives purporting to provide health benefits. While some nutraceutical companies are legitimate, others could be bogus operations with the potential to harm unsuspecting investors.
The con artists behind nutraceutical stock scams may try to lure in investors with optimistic and potentially false and misleading information that in turn creates unwarranted demand for shares of small, thinly-traded companies that often have little or no history of financial success. The con artists behind these "pump and dump" scams can then sell off their shares, leaving investors with worthless stock.
One scam artist claimed to have acquired rights to "all-natural" medicines that treat maladies ranging from the common cold to kidney disease. The company claimed it had "the potential to capture 3 percent of the U.S. market within a three-year period," and "potentially generate "$100,000,000 in revenues." Investors who took a look at the company's unaudited financials would have found a firm with almost no cash on hand and no track record of sales.
"While nutraceuticals claim to help people become healthy, investing in some of the companies associated with these products can make investors' portfolios sick," said Gerri Walsh, vice president for Investor Education for Finra. "The best way investors can inoculate themselves against investment scams is to ask and check."
Walsh says investors can find out if a promoter is licensed by using Finra's BrokerCheck, and check out the investment using the Securities and Exchange Commission's Edgar database of company filings.