FINRA warns against cryptocurrency-related stock scams


The Financial Industry Regulatory Authority (FINRA) has issued an Investor Alert warning investors to beware of potential stock scams when considering the purchase of shares of companies that tout high returns associated with cryptocurrencies, such as bitcoin.

Unrealistic predictions of exponential returns and unsubstantiated claims made through press releases, spam email, telemarketing calls, or posted online or in social media may be signs of a classic “pump and dump” scam. The people touting such deals are typically unlicensed.

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.

Before investing in any cryptocurrency-related stock, buyers should follow these tips to avoid costly mistakes:

  • Be suspicious of anyone who guarantees that an investment will perform a certain way, or makes pushy sales pitches that encourage you to “act now.” If you think the claims might be exaggerated or misleading, contact the SEC, file a complaint using FINRA’s online Complaint Center or send a tip to FINRA’s Office of the Whistleblower.
  • Do not say “yes” to cryptocurrency stock purchases from an aggressive cold caller, particularly if the recommended stocks are very low-priced. Not answering at all, or putting down the phone, are generally the safest responses to a cold caller or anyone aggressively pitching low-priced stocks or other investment opportunities.
  • Use FINRA BrokerCheck® to check the professional background of the individuals involved in selling the investment, as well as the firms who tout these opportunities. Selling securities generally requires a license and registrations under state and federal securities laws and FINRA rules.
  • Check the SEC’s EDGAR database to find out whether the company files with the SEC. If so, read the reports and verify any information you have heard about the company. But remember, the fact that a company that has registered its securities or filed reports with the SEC doesn’t mean it will be a good investment.
  • Be wary of stocks with huge spikes in price. Steep run-ups in price could signal potential manipulation or fraud.
  • Know where the stock trades and pay attention to any cautions associated with the stock. Most stock pump-and-dump schemes tend to be quoted on an over-the-counter (OTC) quotation platform like OTC Markets, which provides icons to warn investors of concerns associated with a given company. These include a stop sign or skull and crossbones to warn of questionable practices.

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