FINRA said that while some nutraceutical companies are legitimate, others could be bogus operations with the potential to harm unsuspecting investors.
The con artists behind nutraceutical stock scams may try to lure in investors with optimistic and potentially false and misleading information that in turn creates unwarranted demand for shares of small, thinly-traded companies that often have little or no history of financial success. The con artists behind these "pump and dump" scams can then sell off their shares, leaving investors with worthless stock.
One company claimed to have acquired rights to "all-natural" medicines that treat maladies ranging from the common cold to kidney disease. The company claimed it had "the potential to capture 3% of the U.S. market within a 3 year period" and "potentially generate $100,000,000 in revenues." Investors who took a look at the company's unaudited financials would have found a firm with almost no cash on hand and no track record of sales.
"While nutraceuticals claim to help people become healthy, investing in some of the companies associated with these products can make investors' portfolios sick," said Gerri Walsh, FINRA's vice president for Investor Education. "The best way investors can inoculate themselves against investment scams is to ask and check. Find out whether the promoter is licensed using FINRA BrokerCheck, and check out the investment using the Securities and Exchange Commission's EDGAR database of company filings."
The Alert warned investors to ignore unsolicited investment recommendations and to question the source of investment information. Investors should also be wary of investments that promise fantastic growth and check out the person promoting the stock or investment. Nutraceutical Stock Scams also includes detailed information to help investors spot potential scams and distinguish frauds from legitimate investment opportunities.