Companies in the e-cigarette and “vape” sector could be the next favourite target of stock pump and dump scammers, U.S. regulators warn.
The U.S. Financial Industry Regulatory Authority (FINRA) issued a new investor alert Tuesday, warning investors about aggressive stock promotions touting companies claiming to be capitalizing on the markets for e-cigarettes and vaporizers. The alert follows a recent trading suspension imposed against a company in the sector by the U.S. Securities and Exchange Commission (SEC) amid concerns about possible manipulative trading in the company’s stock.
The alert notes that some companies that are purporting to exploit the e-cigarette sector have come to market through reverse takeovers, which allow them access to public markets by merging with an existing shell company.
“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,” notes Gerri Walsh, senior vice president for investor education at FINRA. “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.”
The alert reiterates common tips to help investors avoid potential pump-and-dump schemes. It reminds investors to do research before investing, to be skeptical of heavy promotional efforts, and to be wary of firms that have frequently changed names and/or their business focus.