Medical Marijuana Industry Brings Out Wall Street Scammers

by Burke Speaker | August 22, 2013 10:42 am

The Financial Industry Regulatory Authority (FINRA) issued a warning concerning “potential scams associated with marijuana-related stocks”[1] as the budding industry begins to attract investors.

Medical marijuana is legal is nearly 20 states and with it comes investment opportunity.[2]

… pitches to invest in potentially fraudulent marijuana-related companies may arrive in a variety of ways—faxes, email or text message invitations to webinars, infomercials, tweets or blog posts. Regardless of how you first hear about them, the offers almost always contain hallmarks of “pump and dump” ploys. Specifically, fraudsters lure investors with aggressive, optimistic—and potentially false and misleading—statements or information designed to create unwarranted demand for shares of a small, thinly traded company with little or no history of financial success (the pump). Once share prices and volumes reach a peak, the cons behind the scam sell off their shares at a profit, leaving investors with worthless stock (the dump).

Medbox Inc. (MDBX[3]), which sells medical marijuana kiosks, dropped from $37 to $31.80 after the agency’s alert, though is regaining some of its losses.

Bruce Perlowin, the CEO of Hemp Inc. (HEMP[4]) who was convicted and did prison time for drug smuggling, told Bloomberg[5] the message seemed to be directed at his Las Vegas-based company.

From Bloomberg:[6]

Stock in Perlowin’s company, which sells hemp vitamins, candles and sexual enhancers, jumped to 10 cents a share in February and traded for 1.5 cents at 2:30 p.m., giving it a market value of $17.3 million. The company had $426,000 in revenue in the first quarter.

As FINRA points out, these types of scams are already plentiful in other markets, but the medical marijuana booms seems especially ripe but these may be some greens to be cautious about.

Endnotes:
  1. “potential scams associated with marijuana-related stocks”: http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/FraudsAndScams/P325352
  2. with it comes investment opportunity.: http://investorplace.com/2013/02/why-are-marijuana-stocks-growing-like-weeds-right-now/
  3. MDBX: http://studio-5.financialcontent.com/investplace/quote?Symbol=MDBX
  4. HEMP: http://studio-5.financialcontent.com/investplace/quote?Symbol=HEMP
  5. told Bloomberg: http://www.bloomberg.com/news/2013-08-20/medical-marijuana-spawning-pump-and-dump-scams-finra.html
  6. From Bloomberg:: http://www.bloomberg.com/news/2013-08-20/medical-marijuana-spawning-pump-and-dump-scams-finra.html

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