Disease Investment Scam Tips: How to Identify and Avoid Fraudulent Scheme Infection

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With Ebola, Middle East Respiratory Syndrome (MERS), West Nile Virus and other viral outbreaks dramatized by news media, stock scammers have taken to capitalizing on fears of a potential pandemic, turning to aggressive stock promotional tactics that take advantage of this fear.

For instance, by touting stocks that claim to protect against the spread of Ebola and similarly hyped viruses—such as stocks for companies that claim to be involved in the development of cures, vaccines, or other products designed to combat or prevent the spread of viral diseases—scammers hope to solicit funds and investments to feed any number of fraudulent schemes, from the popular "pump and dump" to the complex Ponzi.

Pump and dump schemes are especially potent in the viral disease market because fear of pandemic helps the fraudsters drive interest in bogus stocks, thereby creating artificial demand for shares ("the pump"). Once the con artist determines the share price and volume has sufficiently spiked and peaked, the scammers sell of their shares at a profit, leaving investors with worthless stock ("the dump").

FINRA recommends seven tips to avoid getting infected by a viral stock scam:

>> Investors should consider the source of promotional material, taking special note of companies the investor has never heard of before or that seem to have materialized from nothing. Information overload is key in these schemes, which means too many press releases and other promotions over a very short amount of time is a red flag, because...

>> ...Information overload lessens the likelihood the investor will research the facts. By "sleuthing," investors become educated and more apt to identify a scam. For instance, research can lead investors to conclude that a company's associates and executives have previously been convicted of fraud or have other checkered pasts, that a stock is unreliable, that news reports are inconsistent if not false and/or that the company itself is bogus, such as through a false address or a phone number that has been disconnected.

>> Knowing where the stock trades can help investors because certain stock markets have stringent requirements for member stocks. For instance, the NASDAQ, NYSE and other registered national securities exchanges generally have significantly higher standards for their stocks than do over-the-counter quotation platforms and alternative trading systems.

>> Reading the company's SEC filings allow investors to discover how the public company appears to the government. When these filings do not align with material included in an unsolicited promotional e-mail, for instance, this should raise suspicion. Visit the SEC's EDGAR database to get started.

>> Frequent changes to a company's name or business focus suggest, at best, an undisciplined business model and, at worst, an outright fraud. Companies that build consistent reputations over time are more reliable and less apt to be illegitimate than companies that change focus, physical location or other key attributes on a regular basis.

>> Reading the fine print goes hand in hand with researching the facts. While fine print will rarely state directly that an opportunity is fraudulent, disclosure statements in promotional materials may reveal that the advertising is, for lack of a better term, highly optimistic and unrealistic, or may be paid for by an unlikely source.

>> Conducting adequate research also allows investors to identify companies pretending to be something they are not, whether through "association" with a government agency or by gaining the "endorsement" of a prominent institution. Sometimes companies pay an annual fee to remain in another establishment's good graces while other times companies fabricate the claim entirely. As always, consider the source and for accuracy, consult the agency or company that purportedly supports the advertising stock.

>> Most importantly, remember, that a stockbroker must have both a reasonable basis to believe the security is suitable for investment for some class of investors AND the stockbroker must reasonably believe the investment is suitable for your needs at the time of recommendation. No matter what the broker says after the fact, that suitability obligation remains on the broker.

If you have been targeted in a fraudulent financial scheme that has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

Investor Alert: Viral Disease Stock Scams: Don't Let Them Infect Your Portfolio (FINRA)