Investors in marijuana-related stocks may see their profits go up in smoke, U.S. regulators said on Tuesday.
The Financial Industry Regulatory Authority, Wall Street’s industry-funded watchdog, warned that scammers have been targeting investors attempting to tap into the growing U.S. marijuana industry.
Nearly 20 states permit the use of marijuana for medical purposes, and voters in Washington and Colorado recently made recreational use legal as well.
FINRA said red flags for investors range from the classic “pump and dump” – in which con artists boost the price of thinly traded stocks by misleading investors about a company’s potential, then sell their shares at a peak – to executives with criminal records.
The chief executive of one company that says it is in the medical marijuana business spent nine years in prison for operating one of the largest drug smuggling operations in U.S. history, while the former head of another marijuana-related company was recently indicted for his role in a mortgage-based Ponzi scheme, the watchdog said. FINRA did not name the companies or the individual.
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