The CSA issues warning for coronavirus-related investment scams

The CSA’s news release

The Canadian Securities Administrators (CSA) are warning investors about companies claiming to have products or services that will prevent, detect or cure coronavirus (COVID-19) infection. In a statement released on March 19, 2020, the CSA cautioned investors to be wary of “pump and dump” schemes in particular.

These schemes typically start with a penny-stock company making false claims about a potentially lucrative innovation to help with the pandemic. The false information proliferates through social media and paid marketing campaigns in order to draw in more investors and inflate – or “pump” – the price of the stock. Once the stock price has hit a certain point, the fraudsters sell their own shares – the “dump” portion of the scheme – causing the stock price to drop and leaving new investors with worthless paper.

Given that there is currently no vaccine or any natural health product that is authorized to treat or protect against COVID-19, the CSA urges investors to be cautious of any claims that a company has a solution to help stop the coronavirus outbreak.

The SEC and FCA also issue warnings

Other regulatory agencies have similarly issued warnings about fraudsters using global events and breaking news to lure victims into their schemes. In February, the U.S. Securities and Exchange Commission (SEC) similarly issued an alert to warn investors about investment frauds involving claims that a company’s products or services would be used to help stop the coronavirus outbreak. The U.K.’s Financial Conduct Authority (FCA) released guidance this month advising consumers to watch out for scams related to COVID-19, including investments in cryptoassets.

Investors should remain vigilant

The CSA, SEC, and FCA all advise that when investing in any company, investors should carefully research the investment and keep in mind that fraudsters often exploit the latest crisis. Accordingly, investors should remain prudent and be cautious of “investment opportunities” tied to COVID-19, especially those based on claims that a small company’s products or services can help stop the virus.

 

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Editors

Lawrence E. Ritchie

Partner, Litigation

Alexander Cobb

Partner, Litigation

Shawn Irving

Partner, Litigation

Kevin O’Brien

Partner, Litigation

Lauren Tomasich

Partner, Litigation

Malcolm Aboud

Associate, Litigation