Investors warned to be on alert for e-cigarette stock scams

Go To Jail card 300x180A U.S. stock market watchdog has warned investors to steer clear of scams involving shares in e-cigarette companies.

The Financial Industry Regulatory Authority, a non-governmental body, said investors should be “wary of aggressive promotions touting stocks that claim to capitalize on various aspects of the e-cigarette” market.

“FINRA is concerned that enterprising fraudsters may attempt to entice investors into purchasing stock through a variety of activities including aggressive stock promotion, name changes and reverse mergers. These actions may culminate in a classic ‘pump and dump’ fraud,” it said.

“Investors are lured with aggressive and optimistic statements about the business through press releases, emails and other promotions intended to create demand for the company’s shares (the pump). Once the share price and volume spike, the fraudsters behind the scam sell off their shares at a profit and stop hyping the stock, causing the price to fall and leaving investors with worthless, or near-worthless, stock (the dump).”

As well as close scrutiny of companies’ claims, FINRA cautioned investors to watch out for reverse merger activity – where a company buys another, often in a completely different sector and little more than a shell, to benefit from its stock market listing without having to go through the listing procedure itself.

Subscribe to our Newsletter

Join in to hear about news, events, and podcasts in the sector

    See more

    It also advised care with securities traded on the OTC markets, which are not as closely regulated as the major stock markets.

    As an example of potential pitfalls in e-cig investments, FINRA cited the recent two-week suspension of trading in the stock of American Heritage International Inc. (AHII), ordered by the Securities and Exchange Commission (SEC) “because of concerns regarding potentially manipulative activity related to AHII common stock”.

    What This Means: Much-talked-about and – to many people – slightly mysterious new technologies such as e-cigs are classic opportunities for investment frauds, and it would be no surprise if they are happening in this sector.

    Fortunately they are usually rather easy to spot on the old principle that something sounding too good to be true very likely is, and by listening hard to any warning bells that ring when investigating a company before investing in it.

    – Barnaby Page ECigIntelligence staff

    Barnaby Page

    Editorial director
    Before joining ECigIntelligence in early 2014 as one of its first employees, Barnaby had a 30-year career as a reporter and editor for newspapers, magazines and online services, working in Canada, the US and the Middle East as well as his current British location. He has edited publications covering fields including technology and the advertising industry, and was launch editor of the first large daily online news service in the British regional media. Barnaby also writes on classical music and film for a number of publications. Barnaby manages the editorial and reporting teams and works closely with the analyst teams, to ensure that all content meets high standards of quality and relevance. He also writes for the site occasionally, mostly on science-related issues, and is a member of the Association of British Science Writers.

    Our Key Benefits

    The global e-cigarette market is in an opaque regulatory environment that requires professionals to be on top of industry developments to make informed decisions and optimise their strategy.

    ECigIntelligence provides organisations with leading market and regulatory data analysis to anticipate and understand market developments globally and the impact of regulatory changes to the business.

    • Stay informed of any legal and market change in the sector that impacts your organisation
    • Maximise resources by getting market and legal data analysis daily in one place
    • Make smart decisions by understanding how the regulatory and market landscape evolves
    • Anticipate risks in your decisions by monitoring regulatory changes that impact your organization