Major events and times of uncertainty—such as the current COVID-19 pandemic—have long been exploited by unscrupulous, typically unlicensed, promoters to perpetrate fraud, and microcap securities remain one of their primary tools for such schemes. This and other types of financial fraud continue to be an area of focus for FINRA and other regulators.
FINRA has observed increased indicators of potential microcap fraud, with much of the activity seeking to exploit the COVID-19 pandemic. FINRA has issued two articles that address COVID-19-related fraud, Fraud and Coronavirus and The Coronavirus Is Novel, but Crisis-related Scams Are Nothing New. In addition, the SEC’s Office of Investor Education and Advocacy issued an Investor Alert warning of coronavirus-related investment scams, which includes an updated list of trading suspensions in the shares of several dozen issuers for potentially misleading COVID-19-related claims, with many of these being in microcap securities.