E-Cigarette Scams

Much like it’s marijuana counterpart, FINRA is now warning investors on potential e-cigarette scams. It’s a oft-repeated story of stock manipulation and pump-and-dump. The warnings always include the beware of stocks/companies that come into public existence by way of reverse merger, particularly those that have emerged or are on the Pink Sheets.

FINRA warns of the following:

  • Consider the source. Be skeptical of press releases, “spam” emails, messages on social media sites and promotional materials such as newsletters and blogs from unknown senders.
  • Do some sleuthing. Find out who is at the controls of a company before you invest. Proceed with caution if you turn up indictments or convictions of company officials, or news reports that raise red flags.
  • Check for reverse merger activity. Some e-cigarette companies have come into existence through reverse mergers, which allow private companies, including those located outside the United States, to access U.S. investors and markets by merging with an existing U.S. public shell company.
  • Don’t fall for name dropping. Claims of being the next Apple or Amazon of a new industry seem to be part of the pump-and-dump playbook.
  • Be wary of frequent changes to a company’s name or business focus. Such changes may be a sign that a company is engaged in a potential fraud.

If there is reverse merger activity, there are a few other details on the reverse merger side that are worth noting that make pump-and-dump more likely:

  1. If the control block is 99%+ in the favor of the operators/perpetrators buyer beware.
  2. Be aware of where the stock is trading. Is it a reporting company? Is the company fully reporting with the SEC? Did the company go public with a public shell on the Pink Sheets or the Grey Sheets?
  3. Check the EDGAR database fully. Do all necessary due diligence on the firm in question.

While the perpetrators of such scams utilize many of the same oft-repeated tactics that have been employed in duping investors for decades, the sophistication in the “cover-up” seems to be ever increasing. Social media and the general viral nature of the internet may contribute to more scams in the future. Buyer beware.

Nate Nead on LinkedinNate Nead on Twitter
Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
No Comments

Post A Comment