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SEC Warns of More COVID-19 Investment Fraud Scams

July 17, 2020 Blog

As the COVID-19 pandemic continues to place a stranglehold on normal life in the United States, more and more people are seeking to profit from the crisis. While there are certainly legitimate business opportunities available for the taking, unfortunately, many people are also seeking to take advantage of the crisis to perpetrate fraudulent scams.

In particular, the U.S. Securities and Exchange Commission (SEC) has recently issued two warnings about investment fraud scams targeting individual investors. These follow the SEC’s previous warning in February. If you have concerns about any of the following, you should consult with an investment fraud attorney promptly:

1. Promotions Encouraging CARES Act Retirement Withdrawals

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, retirement investors are able to withdraw up to $100,000 of their retirement savings without the customary 10% penalty, and with the ability to rebuild their retirement savings over a three-year period. Additionally, any amounts withdrawn under the CARES Act are not subject to income tax at the time of withdrawal.

These “hardship” withdrawals are intended to be used to cover debts and other obligations that retirement investors are not otherwise able to cover as a result of the financial effects of the COVID-19 crisis. However, the SEC issued an Investor Alert on June 3, 2020 warning that scam artists have been attempting to encourage retirement investors to withdraw funds from their IRAs and 401(k)s and place them into more-risky (or outright fraudulent) investments. According to the SEC, “unscrupulous promoters have used these CARES Act benefits to encourage investors to take money from their 401(k)s or traditional IRAs . . . to buy investments (often riskier ones) in an account at a firm the promoter recommends or in the investor’s existing account.”

2. Stock Fraud and Market Manipulation Scams Involving COVID-19 “Business Opportunities”

On June 23, 2020, the SEC issued an update to an earlier Investor Alert warning of a number of other types of COVID-19-related investment fraud scams. This includes scams involving stock offerings with claims, “that products or services can prevent, detect, or treat COVID-19, or help to solve issues resulting from the current pandemic.”

The SEC warns that individual investors should be wary of any such investment offerings, and those involving microcap and penny stocks in particular. The Investor Alert includes a list of numerous companies that have been issued trading suspensions as a result of suspected COVID-19-related fraud.

3. Affinity Fraud Scams Targeting the Financial Effects of the COVID-19 Crisis

The SEC is also warning of affinity fraud scams that are targeting the financial effects of the COVID-19 crisis. These scams, “exploit the trust and friendship that exist within groups,” including community and religious organizations. As explained by the SEC:

“Fraudsters may be (or pretend to be) part of the very group they are trying to cheat. They may enlist group leaders to spread the word about the scheme. Those leaders may not realize the “investment” is actually a fraud, which means they too may be victims.”

Speak with an Investment Fraud Attorney at Zamansky LLC

The investment fraud attorneys at Zamansky LLC provide nationwide legal representation for individual investors who are victims of fraud. If you would like to speak with an attorney about recovering fraudulent investment losses during the COVID-19 crisis, we encourage you to call 212-742-1414 or contact us online for a free and confidential consultation.