The Financial Industry Regulatory Authority (FINRA) has issued a warning
to investors regarding so-called “China” stocks. According
to FINRA’s warning, some of the companies that have been advertising
China stocks have no real connection to the country’s stock markets.
While there are legitimate opportunities connected with the Chinese stock
markets, there are also a lot of
investment scams. If you have received a solicitation via fax, email or text message, you
need to beware. Some of these advertisements may place urgency on purchasing
large amounts of China stocks. Scam artists will use this tactic to inflate
the price of the stock and will then sell off their shares. Investors
are then left with a stock valued far below the original price.
Signs That It Could Be an Investment Scam
FINRA outlined the common characteristics of China stock schemes, which include:
- Pressure to invest right away
- Using headlines from respected financial news sources, which may be taken
out of context
- Making predictions of tremendous growth
- Claiming that it is easy to make profits in China
- Statements that tie the growth of the advertised company with the success
of other, unrelated Chinese companies
- Explanation of how certain actions by the Chinese government will create demand
How to Avoid Becoming a Victim of Investment Fraud
Before making any type of investment, you need to do your due diligence.
You can check out the company on the
Securities and Exchange Commission’s (SEC) EDGAR database. If the company is registered and trades with the SEC, you should
analyze the reports carefully and verify any information you have been
told. You should also review the description of the type of business the
company is engaged in and find out if it changed its focus at any time.
It is important to know where the stock trades. There are certain requirements
that must be met for it to be listed on one of the major national exchanges,
such as the NASDAQ Stock Market or New York Stock Exchange (NYSE). When
FINRA issued its warning to investors about China stocks, only 10 companies
beginning with “China” in their name were traded on the NYSE
and as few as 9 were traded on NASDAQ. Even after doing your homework,
you should still be wary about investing in a stock that was touted in
an unsolicited message.