We’ve been wary of medical marijuana stocks for months — and it turns out with good reason. Federal regulators and prosecutors just came down hard on a group of promoters for allegedly pumping and dumping two of the better-known marijuana stocks.
If that’s not enough to scare you away from these dodgy penny stocks, then you deserve to be ripped off. After all, federal regulators and the industry’s own self-regulatory agency have been warning investors off medical marijuana stocks for months.
Earlier this year, federal regulators suspended trading in some medical marijuana stocks as they investigated the possibility of a scam.
And sure enough, they found one — a scam that cost investors $2.5 million.
Manipulating Medical Marijuana Stocks
The Securities and Exchange Commission brought charges against four promoters for allegedly manipulating two medical marijuana stocks — GrowLife (PHOT) and Hemp (HEMP). In a nutshell, these con men allegedly ran up the prices of these stocks by buying and selling shares through different brokers or to one another. They then sold high, causing the stocks to crash.
From the SEC:
“The SEC alleges that the four promoters bought inexpensive shares of thinly traded penny stock companies on the open market and conducted pre-arranged, manipulative matched orders and wash trades to create the illusion of an active market in these stocks. They then sold their shares in coordination with aggressive promotional campaigns that urged investors to buy the stocks because the prices were on the verge of rising substantially. However, these companies had little to no business operations at the time. The promoters reaped more than $2.5 million in illegal profits through their schemes.”
Hey, it’s a clever way for a con man to separate honest folks from their money. But it’s also a crime.
Indeed, a federal district attorney filed criminal charges against three of the four promoters caught by the SEC.
Beware of Promoters Pushing Medical Marijuana Stock
One of the alleged pump-and-dumpers, Christopher Mrowca, “specifically promoted GrowLife through his Money Runners Group website and predicted that the stock price would nearly double,” the SEC says.
At the same time, Mrowca and the three other promoters “engaged in manipulative trading designed to increase the price and volume of GrowLife stock, and they later sold their shares for illicit profits,” according to the SEC.
They allegedly ran the same scam with Hemp, another medical marijuana stock touted on the Internet. One campaign said this medical marijuana stock could have “a REAL Possible Gain of OVER 2900%.”
However, while this promotion was underway — sucking in unwitting marks — the promoters “engaged in manipulative wash trades and matched orders to manipulate Hemp’s common stock before selling their shares for illegal gains,” the SEC contends.
In addition to Money Runners, these medical marijuana stocks were promoted through websites called Explosive Alerts and stockhaven.com.
There are scores of medical marijuana stocks trading on the over-the-counter market. This doesn’t mean all of them are scams. But the SEC and federal prosecutors say at least two certainly are. Why would you risk your hard-earned money to find out if your bet on medical marijuana stocks is on the up-and-up?
Sell your medical marijuana stocks before it’s too late.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.