FINRA Warns Investors About Cryptocurrency Stock Scamsbr>
The Financial Industry Regulatory Authority (FINRA) has warned investors about cryptocurrency-related stock scams.
FINRA is the single largest independent regulatory body for securities firms operating in the United States. FINRA resulted from the merger of the New York Stock Exchange’s regulatory committee and the National Association of Securities Dealers. FINRA, as a regulatory body, is tasked with governing all business dealings conducted between dealers, brokers and all public investors.
In its Investor Alert, FINRA said that would-be investors should be cautious when considering the purchase of shares of companies that tout the potential of high returns associated with cryptocurrency-related activities without the business fundamentals and transparent financial reporting to back up such claims.
“Especially in today’s “hot” cryptocurrency environment, it’s easy for companies or their promoters to make glorified claims about new products, services and other cryptocurrency-related connections,” FINRA said. “And, even when legitimate companies flock to a hot, new sector, fraudsters almost always follow suit, exploiting the news to launch their latest frauds du jour. Follow these tips to avoid costly mistakes.”
The agency said these scams include ‘pump-and-dump’ and market manipulation schemes involving publicly traded companies. The goal of the pump-and-dump scam is to inflate the price of the stock through false and misleading statements that create unwarranted demand for the company’s shares. The con artists can then sell their shares, leaving investors with worthless stock. Individual stocks are the most commonly held investment among investors nationwide, according to a FINRA Investor Education Foundation survey of 2,000 investors with non-retirement investment accounts.
“It can be difficult for investors to avoid the lure of the cryptocurrency markets, especially when prominent people express interest in it, and news reports and social media tout the promise of guaranteed quick fortunes and skyrocketing returns,” said Gerri Walsh, FINRA’s Senior Vice President for Investor Education. “But it is important to do your research. Even when legitimate companies enter a hot, new sector, con artists almost always follow suit.”
The alert came after the Securities and Exchange Commission (SEC) suspended trading in a number of securities due to questions regarding the accuracy of cryptocurrency-related activities. Earlier this month, the SEC temporarily suspended trading of securities of The Crypto Company, a California-based firm whose shares have skyrocketed more than 17,000 percent since it first began trading in September.