SEC Warns About Investment Scams Involving Marijuana

The U.S. Securities and Exchange Commission has put out a an investor alert warning about possible fraud involving microcap companies claiming they are involved in the marijuana industry. Scammers are using the latest growth in the pot industry to get investors to fork over their money in exchange for supposed high returns.

Already, the SEC has suspended five companies for allegedly committing this fraud, including Fusion Pharm Inc., which claims to make a professional cultivation system for cannabis cultivators to use. The Denver-based company was suspended because, according to the regulator, there are doubts about the accuracy of statements it made about assets, financial statements, revenues, financial condition, and business transactions. Other companies in which trading was suspended include: Cannabusiness Group Inc., GrowLife Inc., Petrotech Oil and Gas, and Advanced Cannabis Solutions Inc. Two of the companies were also suspended because of possibly illegal activity, including market manipulation and unlawful securities sales.

According to federal securities laws, the Commission can suspended trading in a stock for 10 days and prohibit a brokerage firm from soliciting investors to sell or buy the stuck until reporting requirements are fulfilled. Unfortunately, it is not uncommon for fraudsters to exploit the latest product, innovation, growth industry, or technology. Marijuana-related companies are typically not required to report to the SEC, which means investors usually have limited access to the kind of information they can get about management, products, services, and finances. This can make it easier for scammers to spread bogus information about a company, allowing them to profit.

Marijuana-Related Investments
According to an SEC alert, marijuana-related investments can be sold in unregistered offerings and may take various forms, such as penny stocks and microcap stocks. Microcap stocks are issued by the smallest companies and their stock price is usually low. Penny stocks are stocks with the lowest prices.

The Commission wants investors to know that if they are thinking about investing in a company that is involved in the marijuana industry, the company could be at risk of prosecution. Federal law currently makes it illegal to dispense, make, or distribute marijuana, and a lot of states have similar laws. However, 20 states and D.C. have made certain marijuana-related activity illegal.

The Financial Industry Regulatory issued its own alert about marijuana stock scams earlier this year. The self-regulatory organization said signs of a possible fraud involving a marijuana-related company might include: Text, email, or fax invites to webinars, tweets, and infomercials. Marijuana investment fraudsters typically promising big returns, while falsely touting a past history of success, to create a huge demand for a stock. Then, in pump and dump fashion, once their share prices and volumes hit their highest levels, scammers sell their shares and make a profit.

Please contact our securities fraud lawyers if you think your investment losses may be a result of investment fraud.

Investor Alert: Marijuana-Related Investments, Investor Alert, May 16, 2014

Read the SEC Trading Suspension Order Against Fusion Pharm (PDF)

Investor Alert: Marijuana Stock Scams

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