The Security and Exchange Commission Friday warned investors about potential scams in investments related to marijuana.
According to SEC, it has suspended two months ago five microcap companies claiming that they are operating in the marijuana business.
Fraudsters lure investors with potentials of high returns, especially with the latest growth in the business with more states legalizing the substance, according to SEC.
SEC warns investors that it is hard to monitor the finances, services, products and management of marijuana-related companies that do not report to the agency. When public information is limited, fraudsters can simply fabricate false information about their company to make more profit and create losses to investors who are not keen enough.
SEC Enforcement Division’s Microcap Fraud Task Force leads the identification and investigation of companies in the microcap market that has released inadequate and inaccurate information. SEC has the power to suspend companies while they continue investigation.
SEC suspended the trading in FusionPharm Inc. of Denver. This company claims that they manufacture professional cultivation system for marijuana cultivators. SEC suspended the company’s trading because of issues on accuracy of assertions concerning FusionPharm’s financial condition, business transactions, financial statements, revenue and assets.
SEC Enforcement Division’s Microcap Fraud Task Force co-chair Elisha Frank said the recent state laws amendments on marijuana open up higher potential for more penny stock fraud. Frank said, they immediately act when they see misleading information to protect the investors’ money.
SEC has also suspended trading in other marijuana-related companies including Petrotech Oil and Gas Inc. of Texas, Advanced Cannabis Solutions Inc. of Colorado Springs, GrowLife Inc. of Woodland Hills, California, and Cannabusiness Group Inc., of Irvine, California.
SEC has the authority to suspend trading in a stock for a span of 10 days prohibiting a broker or a dealer from letting investors buy or sell the stocks unless requirements are met.