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FINRA Warns of Risks Associated with Microcap Investing

February 10, 2021 Blog

Microcap investing has seen a surge in popularity over the past year. This is likely attributable to the combination of two factors: (i) the introduction of investing apps marketed to individuals who are interested in testing the waters of investing on their own, and (ii) the COVID-19 pandemic, which has more people than ever looking for new ways to generate income.  

As a result of this increase in popularity, the Financial Industry Regulatory Authority (FINRA) recently published an article warning about the risks of microcap fraud. Here, securities fraud attorney Jake Zamansky discusses these risks and provides some tips for investors who are dipping their toes into the microcap stock market.

FINRA: “Increased Indicators of Potential Microcap Fraud” Linked to COVID-19

While FINRA’s article discusses the risks of microcap investing in general, it highlights fraud-related risks linked to COVID-19. Specifically, the organization notes that it has observed, “increased indicators of potential microcap fraud, with much of the activity seeking to exploit the COVID-19 pandemic.” FINRA and the U.S. Securities and Exchange Commission (SEC) have both issued multiple warnings regarding coronavirus-related investment fraud scams, and the SEC has published a library of resources for microcap investors as well.

There is nothing inherently wrong with offering microcap stocks. There is a legitimate microcap market, and some investors are able to generate returns from these investments. However, as FINRA notes, due to limited oversight capacity, the risk of fraud is high. Combine microcap offerings with the “opportunities” presented by the COVID-19 pandemic, the growing popularity of investment apps and the financial strain that many people are currently facing, and you have a recipe for pervasive fraud.

Warning Signs for Microcap Stock Fraud

As with most types of securities fraud scams, there are a number of warning signs for microcap stock fraud. Some examples of these warning signs include:

  • Unsolicited promotions for microcap investments (“particularly those linked directly or indirectly to a recent disaster or the latest trend”)
  • Heavy promotion on social media, in chat rooms or on message boards
  • Promotions that focus only on upside potential without disclosing the risk of investing (often with promises of substantial or guaranteed returns)
  • Unverifiable claims about relationships with big companies or technological breakthroughs
  • Inability to obtain additional information about the company beyond what is promoted

What to Do if You Fall Victim to Microcap Stock Fraud

If you fall victim to microcap stock fraud, what should you do? At this point, you need to speak with a securities fraud attorney immediately. It may be possible to recover your losses through FINRA arbitration or securities litigation; but, in order to maximize your chances of success, it will be important to take legal action as soon as possible.

Schedule a Free Consultation with a Securities Fraud Attorney at Zamansky LLC

Are you concerned that you may be a victim of microcap stock fraud? If so, we encourage you to contact us right away. To speak with a securities fraud attorney at Zamansky LLC in confidence, call 212-742-1414 or request a free consultation online now. 

Client Reviews

“Jake Zamasky and his colleagues represented me in a FINRA arbitration case against a large multinational bank and succeeded in obtaining an award for the full amount of my investment losses. I would highly recommend the Zamansky firm for their experience in securities litigation, their level of detailed research and case preparation, and their ability to effectively fight for what’s right.”

Richard R.

“Throughout my entire case, Jake Zamansky was incredibly responsive and spent time walking me through each step of the process. He is professional and worked with my challenging schedule, even meeting with me nights and on weekends. He knew exactly which turn to take when it came to my case and yet was respectful of any decisions I wanted to make resulting in a positive outcome.”

Donald A.

“Jake Zamansky and his firm represented me in a FINRA arbitration case to recover investment losses. Jake and his team were very professional and worked very hard preparing for trial and then reaching a substantial settlement of our case. I would highly recommend them.”

William E.

“Jake Zamansky represented me in a FINRA arbitration case which allowed me to recover a substantial portion of investment losses. He is truly an expert in this space and I would highly recommend him to those investors who may have been been a victim of investment fraud.”

Chris K.

“Jake and his team did a great job communicating with me throughout the process of my lawsuit. I would recommend him to anyone looking to sue UBS for unethical practices.”

Mike A.
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