It’s more than likely you’ve seen “research reports” or lucrative promotions bragging about opportunities to invest in companies that are working to find a cure for specific diseases and ailments. They often pop up alongside the latest news headlines, hoping to take advantage of investors looking to make some quick cash.
Leveraging Coronavirus Outbreak
The coronavirus pandemic out of Wuhan, China is the perfect launching pad for investment scams.
According to the Securities and Exchange Commission (SEC), “a number of Internet promotions… [are] claiming that the products or services of publicly-traded companies can prevent… coronavirus and that the stock of these companies will dramatically increase in value as a result.”
But are these internet promotions legitimate or a scam? Let’s take a look at how the coronavirus investor scam works, and what you can do to avoid being tricked.
How to Spot an Investment Scam
As it relates to coronavirus, the World Health Organization (WHO) announced on Feb. 5 that “there are no known effective therapeutics against [coronavirus]” and that “a master global clinical trial protocol for research and prioritization of therapeutics is ongoing at the WHO.”
So what does this mean?
It means there are no investment opportunities available to the public that are linked to coronavirus. There is not a single company or internet promotion that has had a “breakthrough” in the treatment, prevention, or cure of this deadly disease.
With that said, fraudsters still use microcap stocks (penny stocks) to lure unsuspecting victims into investing their money into a product or service that does not exist.
The SEC says the most common investor scam is called the “pump-and-dump” scheme.
Scammers will boost or “pump” a company’s stock price by announcing positive, yet fake, information. The scammers will buy up the stocks cheap, convince others to also invest, and then “dump” their shares once the stock peaks leaving the investors broke.
“Typically, after the promoters profit from their sales, the stock price drops and the remaining investors lose most of their money,” the SEC writes.
How to Avoid an Investment Scam
Investment scams that use the latest headlines, such as the coronavirus outbreak, will often promise guaranteed returns on your investment.
Consulting someone on how to invest in a stock is one thing, but guaranteeing that a certain stock will perform a specific way is mighty suspicious. Stocks are very hard, if not impossible, to predict. Promising a profitable return is something that isn’t usually touted.
Especially in regard to penny stocks, if you notice a ton of activity around a specific company, it’s a good idea to leave it alone. More often than not, a lot of activity involving a penny stock is a sign that many investors are trying to make a quick buck on falsified information.
Also, if you are contacted directly from someone you don’t know asking you to invest in a specific penny stock, politely decline and walk away. Absolutely no one calls a random person with an “opportunity” that isn’t trying to “line their own pockets” through deceit.