February 20, 2014

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Division of Securities Warns Investors of Scam Medical Marijuana Offers

Press Release

February 20, 2014

Salt Lake City – The Utah Department of Commerce has announced that the Division of Securities is warning Utah investors to be on the lookout for investment pitches that may use medical marijuana businesses in other states as the basis for “hot” stock tips. With Fridays’ announcement by the White House that federal banking institutions will accept payments from medical marijuana dispensaries, regulators are concerned that scam artists may be looking to profit off the public’s trust.

“Before you jump into an investment promising high returns on medical marijuana, check out the sources selling it with the Division of Securities,” said Francine A. Giani, executive director of the Utah Department of Commerce. “If you rush into marijuana-related stocks without doing your homework, your savings may go up in smoke.”

Empty Promises: How to Spot a Potential Scam

Promoters may use a variety of marketing platforms to push false and misleading information about medical marijuana stocks through social media, faxes, emails, Facebook, infomercials, seminars, Twitter or blog posts. Fraudsters tend to use classic “pump and dump” scenarios to create demand for shares in a worthless company where investors lose after con artists “dump” the stock after it peaks (“the pump”).

“Our division has learned promoters are taking advantage of younger investors by advertising on popular classified websites with promises of ‘hot’ stocks ready to burn up the charts,” said Keith Woodwell, director of the Division of Securities. “Before you invest in one of these schemes, ask yourself ‘why me’? Total strangers aren’t looking to share profits with you; they’re looking to steal from unsuspecting victims.”

Tips for Investors: Avoiding Medical Marijuana Pitch Pitfalls 

Ask “why me?” Why would a total stranger tell you about a really great investment opportunity? The answer is there likely is no true opportunity. In many scams, those who promote the stock are corporate insiders, paid promoters or substantial shareholders who profit handsomely if the company’s stock price goes up. 

Consider the source. It's easy for companies or their promoters to make exaggerated claims about lucrative contracts, the company's revenue, profits or future stock price. Be skeptical about companies that issue a barrage of press releases and promotions in a short period of time. The objective may be to pump up the stock price. Likewise, be wary of information that only focuses on a stock's upside with no mention of risk.

Do your research. Contact the Division of Securities to find out if the investment is registered with the state and whether or not the individuals involved have faced prior disciplinary action. Also conduct an internet search with the names of key corporate officials and major stakeholders, as well as the company itself. Proceed with caution if you turn up recent indictments or convictions, investigative articles, corporate name changes or any other information that raises red flags.


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