The SEC took action against 23 companies for making false claims about COVID-19

Securities and Exchange Commission (SEC) HeadquartersJonathan Ernst/Reuters

  • The Securities and Exchange Commission has taken action against 23 companies for making false claims about coronavirus.
  • SEC officials warned of ‘pump and dump’ schemes where people spread false information to boost a company’s stock price then sell its shares at a profit.
  • The federal agency also said micro-cap stocks were more vulnerable to coronavirus fraud.
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The Securities and Exchange Commission has taken action against 23 companies for making false claims about coronavirus to boost their financial performance. 

The federal agency said in a statement: “We have become aware of a number of Internet promotions, including on social media, claiming that the products or services of publicly traded companies can prevent, detect, or cure coronavirus, and that the stock of these companies will dramatically increase in value as a result.”

SEC officials added that investors should “be cautious of claims that a company’s products or services can help stop the coronavirus, especially claims that involve microcap stocks.  These claims may be made as part of fraudulent ‘pump-and-dump’ schemes.”

The regulator highlighted the risk of coronavirus-related fraud back in February when the virus started spreading across the world.

The SEC can stop a stock from trading for up to 10 days if it believes information posted by a company is inaccurate. A halt prevents investors from selling their shares for at least the duration of the trading suspension. 

Among the 23 companies affected, the SEC halted trading of Predictive Technologies Group’s shares on Tuesday. All the companies are listed here. 

Micro-cap stocks

The SEC said micro-cap stocks are most vulnerable to coronavirus fraud and fraudulent investment schemes, including coronavirus-related scams. 

They face greater risk because there is usually limited public information about microcap companies’ management, products, and services. 

“This can make it easier for fraudsters to spread false information about the company and to profit at the expense of unsuspecting investors,” the SEC warned.

The agency specifically cautioned of ‘pump and dump’ schemes, where promoters ‘pump’ or inflate the stock price of a company by spreading positive or incorrect rumours. 

“These rumors cause many investors to purchase the stock,” the SEC said. “Then the promoters or others working with them quickly ‘dump’ their own shares before the hype ends.”

Usually after the promoters profit from the scale, the stock price tanks, hurting other investors.

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