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FINRA Issues Investor Alert over Marijuana Stock Scams

FINRA issued an Investor Alert Tuesday regarding a new crop of nefarious schemes involving marijuana stocks, a financial product related to medical marijuana, which is legal in 20 states.

According to the alert, marijuana scams may resemble the classic "pump and dump" scheme in which scammers solicit great interest and financial investment in an unproven, small company (the "pump"). Once the stock price has reached its apex, the fraudsters sell off their inflated shares for significant profits (the "dump"). In the end, investors are left holding onto stocks worth little in true value.

In June, FINRA and the SEC issued a joint alert concerning e-mail pump-and-dump spam. This previous alert warned investors against unsolicited e-mails, Facebook, Twitter or other online communications that promote small company stock and in which the person responsible for the solicitation claims to have "inside information" or uses other dramatic language meant to lure investors into a fraudulent scheme with promises of high return and even lower risk.

The present marijuana stock scam alert highlights one such scheme in which a company issued over 30 press releases in early 2013, all related to its move into the field of medical cannabis.

According to FINRA, that company used sponsored links (e.g., on a Google search) and spam e-mail to entice investors by claiming the stock could "double its price SOON" and that it was "poised to light up the charts." Upon further investigation, FINRA discovered that the company's balance sheet showed only losses and the company itself admitted elsewhere that its business plan was only in the beginning stages of development.

To avoid falling into such a trap, FINRA recommends investors ask questions, namely, "why me?" The Authority points out it is quite extraordinary for a total stranger to seek out a specific investor with no prior relationship for a "really great" investment opportunity.

As always, FINRA encourages investors to consider the source (does the company have a positive reputation, for instance) and to do research regarding the company, stock names, names of corporate officials, major stakeholders and other individuals associated with the company.

FINRA points out, as a cautionary tale, that one such medical marijuana company CEO spent nine years in federal prison for operating a large drug smuggling operation while another CEO was incited for his role in a multi-million dollar mortgage-related Ponzi scheme.

The alert recommends investigating whether such solicitation is coming from a present or former federal prisons' inmate by searching the Federal Bureau of Prisons Inmate Locator.

FInally, FINRA recommends reading a company's SEC filings via the SEC EDGAR database and to see if the business is established or credible. For instance, businesses operating on the NASDAQ Stock Market or New York Stock Exchange (NYSE) are less likely to be associated with pump and dump schemes than stocks trading over-the-counter or on other smaller—and less regulated—platforms.

If you have received unsolicited investment invitations or have invested in a suspected pump-and-dump scheme, such as a medical marijuana stock scam, and such suspected fraud has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

FINRA Investor Alert: Marijuana Stock Scams