The Financial Industry Regulatory Authority, or Finra, issued an investor alert Tuesday cautioning investors that some marijuana stock pitches bear the hallmarks of classic Wall Street "pump and dump" schemes.The investment pitches can come via email, Twitter, webinars or fax, the alert said. In such scams, promoters of thinly traded, low-price shares (or penny stocks) fuel investor demand by hyping the stocks' growth potential. Then they dump the stock, saddling investors with worthless shares. One marijuana-focused company, unnamed in Finra's alert, issued 30 news releases in the first half of this year. Promos exclaimed the stock "could double its price SOON" and was "poised to light up the charts," even though the company reported only losses and noted it had yet to formulate a business plan.
The regulator stopped short of publicly identifying any particular frauds. But Finra has seen an uptick in spam email and Internet promotions of marijuana-focused penny stocks with questionable financial pictures, said Gerri Walsh, Finra’s senior vice president for investor education. “Whenever there’s a next big thing, we see fraudsters swimming like sharks trying to get in on the action,” Walsh said. “And that appears to be what’s happening here.”