SEC Alerts “Main Street” Investors About Investment Frauds, Including Scams Related to Coronavirus (COVID-19) Pandemic

Kehoe Law Firm, P.C. is making investors aware that on April 10, 2020, the SEC’s Office of Investor Education and Advocacy and Division of Enforcement’s Retail Strategy Task Force issued an alert warning investors that fraudsters often seek to use national crises and periods of uncertainty to lure investors into scams.  As detailed below, the SEC cautions that fraudsters may play off investors’ hopes and fears, as well as their charity and kindness, and may try to exploit confusion or rumors in the marketplace. 

Frauds Main Street Investors Should Watch For, Especially During The Coronavirus Health Crisis

As you navigate the COVID-19 pandemic, don’t overlook the importance of protecting yourself and others from investment scams.  Many investment frauds involve unlicensed individuals or unregistered firms, so verify that the seller is currently registered or licensed using the free and simple search tools on  Also, watch for promises of guaranteed high investment returns and unsolicited investment offers.  To learn more about these red flags and others, access the webpage How to Avoid Fraud.

Fraudulent Stock Promotions and Market Manipulation

If you are considering investing in a company, especially in a microcap or penny stock, be skeptical of claims that products or services can prevent, detect, or treat COVID-19, or help to solve issues resulting from the current pandemic.

The SEC has become aware of a number of stock promotions, including online and through unsolicited phone calls, claiming that products or services of publicly-traded companies can prevent, detect, or cure COVID-19, and that the stock of these companies will dramatically increase in value as a result. Individuals should contact the Food & Drug Administration (FDA) with questions about FDA involvement with, or approval of, specific products and services.

Wrongdoers may promote rumors on social media, as well as on online bulletin boards and in online chat rooms. Claims also might concern companies converting operations to COVID-19-related support, or legislative stimulus packages and related industries that supposedly benefit from the current crises.  You may lose a lot of money if you invest in a company based on inaccurate or unreliable claims or rumors. 

False claims about a company’s products and services are sometimes part of a “pump-and-dump” scheme where fraudsters profit at the expense of unsuspecting investors.  Microcap stocks may be particularly vulnerable to pump-and-dump schemes because there is often limited publicly-available information about microcap companies’ management, products, services, and finances as well as limited institutional interest in those companies.  This can make it easier for fraudsters to spread false information about the company and move the price of the stock to take advantage of the public.

SEC Trading Suspensions

Recent trading suspensions issued in connection with coronavirus/COVID-19 include:

Fraudulent Unregistered Offerings

Under the federal securities laws, a company may not offer or sell securities unless the transaction has been registered with the SEC or an exemption from registration applies.  Many legitimate companies use unregistered offerings to raise funds from investors.  Fraudsters, however, may also use unregistered offerings to conduct investment scams.

Be wary of promises of high investment returns with little or no risk, unregistered professionals, aggressive sales tactics, and other red flags.  Be particularly vigilant of fraudsters taking advantage of the volatile markets to tout “safe” or “bottomed out” investments in companies that purportedly have interests in commodities such as gold, silver, or oil and gas, for example. Before you hand over your money, research the investment and ask questions.  See also 10 Red Flags that an Unregistered Offering May be a Scam.

If you are considering an investment relating to the COVID-19 pandemic, check if it is registered with the SEC by using the SEC’s EDGAR database or contacting the SEC’s toll-free investor assistance line at (800) 732-0330.

Charitable Investment Scams

Many organizations currently offer opportunities to help those most affected by the COVID-19 pandemic.  Fraudsters may try to exploit your desire to help others by using charitable causes as a hook for investment schemes.  For example, they may pretend that your investment will provide financial support or medical treatment to people in need as a result of the COVID-19 pandemic and then steal your money instead.

If you are considering participating in an investment offered by a charity that claims to be a tax-exempt or “501(c)(3)” organization, check out the organization’s tax status on the Tax Exempt Organization Search on the Internal Revenue Service’s website.  If a so-called charitable organization is not listed, and has misrepresented that it is tax-exempt, do not invest in the organization.  Even if a charity has 501(c)(3) status, this does not mean the investment is a legitimate opportunity – it still could be part of a fraudulent scheme.  Ask questions and independently research the organization to find out as much as you can.

Community-Based Financial Frauds

Community-based financial frauds, also called affinity frauds, target members of identifiable groups, including people with common ties based on ethnicity, nationality, religion, sexual orientation, military service, and age.  These scams exploit the trust and friendship that exist within groups.

Fraudsters may be (or pretend to be) part of the very group they are trying to cheat.  They may enlist group leaders to spread the word about the scheme.  Those leaders may not realize the “investment” is actually a fraud, which means they too may be victims.

Know who you are dealing with and know what they are selling—even if you have something in common with the person.  Type the person’s name into the search box on to do a background check on anyone offering or selling you an investment.  

Bogus CDs Offering High Returns

During periods of market volatility, many investors may seek investments they feel are safer and less subject to risk and price fluctuation, such as financial products with fixed-rate returns.  The SEC is aware of current fraudulent promotions of phony Certificates of Deposit (CDs) through internet advertising and “spoofed” websites – websites that mimic the actual sites of legitimate financial institutions.  Spoofed websites may use URL addresses similar to those of legitimate firms’ websites, or use legitimate-sounding names and URLs.

Spoofed websites selling fake CDs may offer high interest rates with no penalties for early withdrawals, promote only CDs (and no other financial products), require high minimum deposits, direct investors to wire funds abroad or to an account with a different name than the listed financial institution, claim the deposits are FDIC-insured, and identify “clearing partners” purportedly registered with the SEC.

Investors should be extremely cautious when purchasing CDs from websites they find through internet searches.  If you are considering an investment in CDs, consider these tips to help you avoid bogus CD scams.

Source: Securities and Exchange Commission –

Kehoe Law Firm, P.C.