FINRA Warns Investors of E-Cigarette Stock Scams

Published on December 23, 2014 12:05 PM

(SI Newswire) (WASHINGTON, DC) The Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called E-Cigarette Stock Scams: New Smoking Technology Could Light Up Pump-and-Dump Fraud warning investors of aggressive promotions touting stocks that claim to capitalize on the e-cigarette and vaporizer, or "vape," market. FINRA's Alert follows the Securities and Exchange Commission's recent trading suspension for a company that purported to make disposable electronic cigarettes because of concerns about manipulative activity related to the company's common stock.

"The popularity of e-cigarettes has grown rapidly over the last several years, and the e-cigarette and "vape" markets have been the subject of considerable media attention. Investors interested in this market have to look beyond the hype and be watchful for pump-and-dump fraudsters who are eager to make their money disappear into thin air," said Gerri Walsh, FINRA's Senior Vice President for Investor Education.

E-Cigarette Stock Scams includes a series of tips to help investors avoid potential stock scams.

  • Consider the source. Be skeptical of press releases, "spam" emails, messages on social media sites and promotional materials such as newsletters and blogs from unknown senders.
  • Do some sleuthing. Find out who is at the controls of a company before you invest. Proceed with caution if you turn up indictments or convictions of company officials, or news reports that raise red flags.
  • Check for reverse merger activity. Some e-cigarette companies have come into existence through reverse mergers, which allow private companies, including those located outside the United States, to access U.S. investors and markets by merging with an existing U.S. public shell company.
  • Don't fall for name dropping. Claims of being the next Apple or Amazon of a new industry seem to be part of the pump-and-dump playbook.
  • Be wary of frequent changes to a company's name or business focus. Such changes may be a sign that a company is engaged in a potential fraud.

Investors who receive an offer that contains exaggerated or misleading claims are urged to contact FINRA.