SEC Issues Investor Alert Regarding Marijuana-Related Investments Amid Recent Trading Suspensions (with Lofchie Comment)

The SEC issued an investor alert warning of the potential for fraud in microcap companies whose operations relate to the marijuana industry.The alert follows the SEC's fifth suspension in the past two months of a company claiming to be involved in the marijuana industry for which concerns were raised about the accuracy of the company's assets, revenues and other financials.

The investor alert states that fraudsters often exploit the latest growth industry to lure investors with the promise of "high returns." According to Elisha Frank, SEC Co-Chair of the Enforcement Division's Microcap Fraud Task Force, "Recent changes in state laws concerning medical and recreational marijuana have created new opportunities for penny stock fraud."

Lofchie Comment: We are in the process of seeking clarification from FINRA as to the use of the term "high returns," including whether the term is intended to refer to economic or non-economic returns.

See: SEC Investor Alert; SEC Press Release. Related news: Senators Submit Questions to FinCEN on AML Guidance for Banks Seeking to Service Marijuana-Related Businesses (with Moreno Comment) (April 3, 2014); Cadwalader's Business Fraud Advisor: AML Guidance Issued for Banks Seeking to Service Marijuana-Related Businesses (February 27, 2014).